INTEREST RATES AND CURRENCIES: Investors’ faith is tight in the Iran crisis – Euro interest rates on the rise again

Interest rates on government bonds are again slightly rising in Europe. In the USA, the market was closed yesterday, and interest rate quotations are taking into account yesterday’s decline.

US and Israeli warplanes struck Iranian ships in the Strait of Hormuz and other targets overnight, just hours after US President Donald Trump had hinted that talks with Tehran on an interim deal were moving forward. Thus, Monday’s increase in investor confidence has been partially erased.

The crisis in the oil market raises inflation prospects, to which central banks have to react. In the United States, interest rate cut expectations have disappeared with the crisis, and investors are now betting on a rate hike either at the end of the year or at the beginning of next year. A slight relief in market sentiment has moved the interest rate hike expectation to March next year.

According to investors, a possible interest rate hike in Europe is closer. The ECB will hold its next meeting in a couple of weeks on June 11, 2026. In the market, investors’ betting gives more than a 91 percent probability of interest rate hikes. By the end of the year, investors expect two or even three rate hikes.

At 15:15, the German federal government’s 10-year reference bond market rate was 3.0 basis points higher at 2.974 percent. The interest rate of the corresponding loan in the United States was 7.1 percentage points lower at 4.487 percent.

In two-year loans, the German interest rate was 4.8 percentage points higher at 2.574 percent, and the American interest rate was 5.9 percentage points lower at 4.062 percent.

“Idea [Iranin ja USA:n] of the agreement has kept up the demand for government bonds rather than the actual agreement. We estimate that there will be no relief to the market until the right deal is in place,” Toronto Dominion Bank’s European Fixed Income Strategist Pooja Kumra told Bloomberg.

In the foreign exchange market, the dollar has strengthened slightly after yesterday’s decline on Monday.

At 3 p.m., the euro fetched 1.1635 dollars, 185.22 yen, 0.86384 pounds or 10.822 Swedish kronor. The dollar was 159.19 yen and the pound was 1.3469 dollars.