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The European Central Bank (ECB) should avoid overestimating the likelihood of a swift resolution to the ongoing conflict in Iran, warned ECB Executive Board member Olli Rehn. In a recent statement, Rehn highlighted that prolonged geopolitical tensions could undermine eurozone economic recovery, particularly in energy-dependent sectors. The warning comes amid rising concerns over potential disruptions to oil supplies and increased volatility in European markets. For traders, Rehn's remarks signal caution regarding the ECB's policy outlook. A delayed resolution to the Iran crisis could delay the central bank's plans to taper stimulus measures, keeping interest rates lower for longer. This scenario may weaken the euro against the US dollar, with EUR/USD facing downward pressure. Additionally, European equities, especially energy and industrial stocks, could experience heightened volatility as investors reassess risk appetite. Looking ahead, market participants should monitor ECB's upcoming policy meetings for hints on rate adjustments and asset-purchase programs. Geopolitical developments in the Middle East, including diplomatic efforts between Iran and the US, will also shape market sentiment. Traders are advised to maintain hedging strategies against currency and equity risks in the near term.
