Euro Drops Near One-Year Low on Middle East Tensions

The euro opened the week at $1.14, nearing its one-year low from June, as investors responded to escalating Middle East tensions. Oil prices surged after another round of US strikes on Iran, with both sides disputing the status of the Strait of Hormuz. The US Central Command reported striking dozens of targets to weaken Iran’s ability to threaten shipping in the waterway. Iran, however, announced on Sunday that the strait would remain closed “until further notice.” The uncertainty fueled inflation concerns, leading investors to bet on further European Central Bank interest rate hikes. The ECB had already raised rates in June for the first time since 2023. Now, markets expect two additional hikes over the next year, with the first likely in September, to counter inflation driven by rising fuel costs tied to the Iran conflict. ECB policymaker Yannis Stournaras warned on Friday that the central bank is “back to square one” in its battle against high inflation in the eurozone.

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