The recent Iran conflict has led to elevated oil and gas prices, which ABN AMRO economists believe will negatively impact Eurozone growth more than US growth due to the Eurozone's status as a net energy importer. They highlight that the Eurozone's growth is fragile, and while the current situation is not expected to be as severe as the previous energy crisis—when the economy stagnated for five quarters—even in negative scenarios, inflation risks remain significant. In positive scenarios, the ECB is expected to 'look through' the rise in energy inflation, but in middle scenarios, the Governing Council may consider an insurance rate hike, potentially at the 30 April meeting. In negative scenarios, this could be followed by two additional rate hikes to preempt spillovers to the labor market [1].
On the currency front, ING’s Francesco Pesole reports that EUR/GBP has declined about 1.5% since the Iran conflict began, driven by a stronger GBP rate profile and resilient equity markets. However, Pesole notes that the move now appears stretched based on short-term valuation metrics. With oil prices falling below $90, he anticipates a dovish reassessment in UK rate expectations, which could prompt a corrective bounce in EUR/GBP. ING favors a return to 0.870 rather than a further decline to 0.860 [2].
Both sources highlight the market sensitivity to energy prices and central bank responses. ABN AMRO underscores the potential for ECB rate hikes in more negative scenarios, while ING points to a possible corrective move in EUR/GBP as oil prices ease and valuation metrics suggest the recent decline may be overdone [1][2].
CONCLUSION
The Iran conflict has triggered higher energy prices, weighing on Eurozone growth and raising inflation risks, with the ECB potentially considering rate hikes in more adverse scenarios [1]. Meanwhile, EUR/GBP's recent decline may be poised for a corrective bounce as oil prices fall and short-term valuations look stretched [2]. Market sentiment remains cautious, with medium impact expected as central banks and currency markets react to ongoing developments.