FX.co ★ Euro Slumps on Energy Shock Concerns

The euro slipped to $1.156 by the end of a turbulent week, as investors piled into the US dollar amid mounting inflation concerns stemming from the Iran-related energy shock. Brent crude rebounded to multi-year highs after attacks on refineries in the Middle East, and reports indicated the Trump administration may be considering strikes on Iran’s Kharg Island. In response, traders sharply increased wagers on tighter ECB policy: money markets are now discounting at least two interest rate hikes in 2026, with a third seen as possible. The central bank left rates unchanged on Thursday but raised its inflation projections and lowered its growth outlook, citing escalating risks from the Middle East crisis. ECB policymaker Joachim Nagel signaled that a rate increase could come as early as next month if inflationary pressures persist, while François Villeroy de Galhau emphasized the bank’s readiness to act decisively.