ECB Monitors Inflation and Growth Risks Amid Iran Conflict Uncertainty

The European Central Bank (ECB) has adopted a 'wait-and-see' approach, stating it is too early to fully assess the economic impact of the Middle East conflict on the euro area. ECB Vice President Luis de Guindos emphasized that the central bank must 'keep a cool head' regarding interest rate decisions despite the ongoing Iran-Israel tensions. The ECB is widely expected to keep interest rates on hold during its next meeting while maintaining full optionality for future policy moves. Policymakers noted that geopolitical volatility has triggered a supply shock, driving up energy prices and heightening inflation risks. Consequently, market expectations are shifting toward a potential 'insurance' rate hike in June to anchor price stability. This situation complicates the ECB's mandate as it navigates the dual threat of rising prices and slowing growth, keeping EUR pairs under close market scrutiny.