2026.07.1306:42:57UTC+00Euro Drops Near One-Year Low on Middle East Tensions

The euro began the week at $1.14, hovering near its one-year low last seen in June, as investors reacted to escalating tensions in the Middle East. Oil prices climbed sharply following another round of US strikes on Iran, amid mounting uncertainty over control of the Strait of Hormuz. US Central Command said it had hit dozens of targets aimed at reducing Iran’s capacity to threaten shipping through the strategic waterway. Iran, however, declared on Sunday that the strait would remain closed “until further notice.”

The heightened uncertainty has intensified fears of renewed inflation, prompting investors to anticipate further interest rate increases from the European Central Bank. The ECB already raised rates in June, its first hike since 2023. Markets now expect two additional increases over the next year, with the first likely in September, as policymakers seek to counter price pressures fueled by higher energy costs linked to the Iran conflict. ECB Governing Council member Yannis Stournaras cautioned on Friday that the central bank is “back to square one” in its fight against elevated inflation in the eurozone.