Euro slips as Iran conflict drives dollar demand, ECB hike bets

The euro edged lower against the US dollar on Friday as the sixth day of military exchanges between the United States and Iran continued to fuel safe-haven demand for the greenback, while surging energy prices kept alive expectations that the European Central Bank will raise interest rates again in September.

Dollar Strength and Euro Pressure

The EUR/USD pair slipped below 1.145 in early Friday trading, extending losses from the previous session when it fell 0.19% to 1.1442, according to market data. The US dollar has benefited from safe-haven flows as the conflict between Washington and Tehran escalated following the collapse of an interim ceasefire on July 8.wikipedia+1

Reuters reported on Thursday that the dollar firmed as US-Iran tensions renewed oil price risks, with Brent crude trading near a one-month high. Oil prices have risen more than 6% over the past month, with WTI crude climbing to around $80 per barrel as the US reimposed a naval blockade on Iranian ports and both sides traded attacks near the Strait of Hormuz.reuters+3

ECB September Hike Bets Grow

A Reuters poll published on Wednesday found that 70% of economists — 52 of 74 surveyed — now expect the ECB to raise rates again in September, up from 60% in last month's survey. The central bank is widely expected to hold its deposit rate at 2.25% at its July 23 meeting before delivering what would be its second hike of 2026.reuters+1

The ECB raised rates by 25 basis points in June, its first increase since 2023, citing inflation pressures from the Middle East conflict. Staff projections now see eurozone inflation averaging 3.0% in 2026, up from a previous forecast of 2.6%. The renewed surge in oil prices following the resumption of hostilities has reinforced the case for further tightening.global.morningstar+1

Gold Declines Despite Geopolitical Risk

Gold prices fell modestly on Friday, declining 0.11% to around $3,982 per ounce, as rising Treasury yields and expectations of tighter monetary policy on both sides of the Atlantic outweighed the metal's traditional safe-haven appeal. The non-yielding asset has been under pressure in recent weeks, recording its largest quarterly drop since 2013 in the second quarter as rate hike expectations mounted.thehindubusinessline+2

Market pricing currently implies roughly a 51% probability of a Federal Reserve rate hike in September, down from 67% the previous week after soft US inflation data complicated the picture. The tension between easing domestic price pressures and the threat of an oil-driven inflation resurgence continues to dominate trading across asset classes.olxforex