The euro traded just below $1.16, touching its weakest level since late November, as investors weighed the escalating Middle East conflict and rising inflation risks. Regional tensions intensified after reports that US President Donald Trump encouraged Iranian Kurdish forces in Iraq to target Iran, Azerbaijan warned of retaliation after Iranian missile strikes, and Kuwait said it was intercepting missiles and drones in its airspace. The surge in energy prices triggered by the conflict is expected to keep inflationary pressures elevated across Europe, reinforcing expectations that the ECB may shift toward tighter monetary policy. Several policymakers warned on Thursday that if the war in Iran drags on and draws in additional countries, eurozone inflation could rise while economic growth weakens. Money markets currently assign about a 60% probability of an ECB rate hike in December and a 90% chance of an increase by June 2027.