The euro fell against the dollar on Monday as improving risk sentiment around US-Iran tensions supported the greenback, while European Central Bank President Christine Lagarde signaled the central bank was in no rush to turn more aggressive on rates.
The move extended recent pressure on the single currency, which traders have been weighing against a stronger US dollar and shifting expectations for monetary policy on both sides of the Atlantic.
Lagarde said the ECB remained well positioned to handle the economic impact of the Iran shock and that there was no evidence yet of inflation becoming unanchored or second-round effects emerging that would justify a stronger policy response.
The remarks tempered bets on further ECB tightening, even as the euro area faces uncertainty from energy prices, broader Middle East risks and a fragile growth outlook.
The euro had already been under pressure in recent weeks as markets assessed the effect of tensions in the Middle East and the outlook for US rates, with the dollar drawing support from its safe-haven appeal and expectations for a more hawkish Federal Reserve.
For markets, the key question now is whether easing geopolitical fears can sustain demand for risk assets or whether renewed conflict headlines and central bank signals keep the dollar in favor.
