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Commerzbank Says Euro Strengthens, Oil Holds Steady Amid Iran Tensions

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Japan's Nikkei fell nearly 3% and South Korea's KOSPI tumbled 6.8% after the Bank of Korea raised interest rates, while the euro strengthened to $1.146 and Brent crude was little changed at about $84.50 per barrel, Commerzbank said in a note.

Treasury yields fell to session lows late in New York before edging higher during Asian trading, wrote the bank in the note

The U.S. launched another round of strikes against Iran, including an attack on an oil tanker reportedly headed for Kharg Island. According to The Wall Street Journal, President Donald Trump is leaning toward expanding military operations. Trump said Iran would be "defeated very soon" and added that oil prices would fall "when Iran settles down."

Federal Reserve Chair Kevin Warsh said the Artificial Intelligence boom is unlikely to create sustained inflationary pressures, said the bank. Fed Governor Lisa Cook cautioned that inflation risks currently outweigh concerns about a softening labor market.

Meanwhile, President Trump said it would be preferable for the Fed to keep interest rates unchanged rather than raise them.

Policymaker Emmanuel Moulin said the European Central Bank must remain prepared for any inflation scenario. Meanwhile, ECB policymaker Joachim Nagel argued that a stronger international role for the euro would bolster Europe's economic sovereignty.

Moulin, who also heads the French central bank, stressed that France must avoid a debt snowball effect and underscored the need to reduce the fiscal deficit, added Commerzbank. A finance ministry-commissioned report warned that, without additional policy measures, the budget deficit is projected to widen to 7% of gross domestic product by 2030.

Britain's incoming Prime Minister Andy Burnham said he is considering tax increases.

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