Euro Falls as Oil Prices Lift Dollar

That gap matters for investors because exchange rates are increasingly being driven by relative interest-rate expectations, not just growth differentials. Commerzbank foreign-exchange strategist Thu Lan Nguyen said the key question is how central banks respond to the oil move, with the dollar likely to benefit if the Fed reacts more forcefully than the ECB.

Oil prices have eased a little at the start of the new week but remain elevated, leaving markets sensitive to the risk that energy costs feed through into consumer prices. For the euro area, which is more dependent on imported energy, that is a bigger headwind than for the United States and can weigh on growth and the currency at the same time.

Geopolitics is still part of the equation, with the Middle East remaining a major factor for financial markets and for crude prices in particular. That keeps the euro-dollar pair vulnerable to more swings if energy markets stay unsettled or if traders push US rate expectations higher again.

In other major currencies, the ECB set the euro at 0.84205 British pounds, 177.63 yen and 0.9261 Swiss francs. Gold eased to $4,148 an ounce, down about $17 from Friday.

Forward-looking, the euro’s next move is likely to hinge on whether higher oil prices translate into firmer US rate expectations than in Europe, and on whether Middle East tensions keep crude markets elevated.