The euro held just below $1.14, nearing a one-year low against the US dollar, as investors reacted to escalating Middle East tensions, rising oil prices, and growing concerns about inflation’s impact on monetary policy and economic growth.

The US military continued strikes against Iran after President Donald Trump reinstated a blockade on Iranian shipping and proposed a 20% fee to guard the Strait of Hormuz, increasing uncertainty over energy flows.

Markets responded by pricing in further European Central Bank rate hikes, with money markets expecting a deposit rate of 2.70% by December, up from 2.25%, and fully anticipating a September increase.

In the US, Fed Governor Christopher Waller warned that the central bank may need to raise rates "in the near term" if inflation remains above the 2% target.

Investors now await remarks from Federal Reserve Chair Kevin Warsh and US inflation data later today.