The US dollar held near its highest levels in three months on Wednesday as investors adopted a deeply bearish stance toward the euro amid concerns about persistently high energy prices following the conflict in the Middle East, which has weighed on global equity markets.

The euro was steady at $1.1612 after earlier touching its weakest level since late November, following data released Tuesday showing eurozone inflation accelerated faster than expected in February, before the Iranian conflict began.

George Saravelos, global head of FX research at Deutsche Bank, said the impact of the Iranian war on the euro/dollar pair comes down to one factor: energy.

Options Market Signals Weakness in the Euro

Financial markets resumed their selloff on Wednesday as fears of rising inflation spread after Israeli and US strikes on targets in Iran, prompting investors to rush toward liquidity.

The options market shows traders are more bearish on the euro than at any time in at least a year, reversing the overwhelmingly bullish stance seen just six weeks ago.

“We are still in a scenario where dollar dips will be short-lived and bought, because there is a lot of negativity priced into most currencies sensitive to energy prices,” said Jeremy Stretch, head of G10 FX strategy at CIBC Capital Markets. “And in Europe, everything revolves around natural gas prices.”

The cost of euro put options against the dollar for the coming quarter reached the highest premium since last March, according to LSEG data, indicating traders expect further downside for the euro.

Euro Could Fall Toward $1.13

Saravelos noted that every combined 10% rise in Brent crude and European natural gas prices reduces the euro’s value by about 0.8%, adding that Brent and gas reaching $100 per barrel could push the euro/dollar pair toward roughly $1.13.

Global oil and gas prices have surged as Middle East energy exports were disrupted following Iran’s retaliatory strikes on ships and infrastructure, which closed shipping routes in the Gulf and halted production from Qatar to Iraq.

Brent futures have risen about 16% since Friday to reach $84 per barrel, the highest level since July 2024, while European gas prices have climbed about 85% since the end of last week.

European Central Bank Outlook

Market traders are pricing a 33% chance that the European Central Bank will raise interest rates this year, compared with a 40% probability of a rate cut just a week ago.

Elsewhere, the British pound fell 0.3% to $1.3323, pressured by rising energy costs as UK inflation remains at 3%, above the Bank of England’s 2% target.

Meanwhile, the dollar index was steady at 99.05 after reaching its strongest level since November 28. The dollar slipped 0.26% against the yen to ¥157.35 and edged down 0.1% against the offshore yuan to 6.913 after mixed Chinese PMI data for February.

Oil prices rose by about 1% on Wednesday as US-Israeli strikes on Iran disrupted Middle East supplies, although the pace of gains slowed compared with previous sessions after President Donald Trump suggested the US Navy could escort ships through the Strait of Hormuz.

Brent crude rose $1.1, or 1.4%, to $82.52 per barrel by 11:43 GMT, after closing Tuesday at its highest level since January 2025.

US West Texas Intermediate crude gained 40 cents, or 0.5%, to $74.96 per barrel, after settling at its highest level since June.

Prices briefly pulled back, with the WTI contract momentarily turning negative, after The New York Times reported that officials linked to Iran’s intelligence ministry had shown openness to talks with the US Central Intelligence Agency aimed at ending the war, citing officials familiar with the matter.

Kelvin Wong, senior market analyst at OANDA, said the US-Iran conflict remains the primary driver of oil prices in the near term.

“At this stage, the current upward trend in WTI can only be eased or reversed by clear signs of de-escalation, and such signals are currently absent,” he added.

Israeli and US forces carried out strikes on targets across Iran on Tuesday, prompting Tehran to launch attacks on energy infrastructure in a region that produces nearly one-third of global oil output.

Officials told Reuters that Iraq, the second-largest crude producer in the Organization of the Petroleum Exporting Countries (OPEC), had cut output by about 1.5 million barrels per day, roughly half of its production, due to limited storage capacity and the lack of export routes.

They added that Iraq may be forced to halt around 3 million barrels per day of production within days if exports do not resume.

Iran has also targeted oil tankers in the Strait of Hormuz, through which roughly one-fifth of global oil and liquefied natural gas flows pass. The strait remains effectively closed to shipping.

Trump said the US Navy could begin escorting oil tankers through the Gulf if necessary, adding that he had instructed the US International Development Finance Corporation to provide political risk insurance and financial guarantees for maritime trade in the Gulf.

Helima Croft, analyst at RBC, said that despite the apparent decline in oil prices, the insurance proposal still appears to be in the early conceptual stage, raising questions about whether sufficient coordination exists with international insurers covering oil tankers.

Countries and companies have already begun searching for alternative routes and supplies. India and Indonesia said they are exploring other energy sources, while some Chinese refineries have shut down or accelerated maintenance plans.

In the United States, crude inventories rose by 5.6 million barrels last week, according to market sources citing figures from the American Petroleum Institute, far exceeding analysts’ expectations for an increase of 2.3 million barrels.

Official data from the US government is expected later on Wednesday.

Gold prices rose in European trading on Wednesday to resume gains that had temporarily paused yesterday, beginning to recover from a two-week low amid active buying from corrective levels and supported by a halt in the rise of the US dollar in the foreign exchange market.

With the likelihood of a US interest rate cut in March fading, traders are awaiting several important US data releases later today, which the Federal Reserve relies heavily on in determining the course of monetary policy this year.

Price Overview

Gold prices today: gold prices rose by 2.0% to $5,190.79, up from the opening level of $5,088.52, after touching a session low of $5,085.13.

At Tuesday’s settlement, gold prices fell by 4.4%, marking the first loss in the past five days and the largest daily decline since February 2, hitting a two-week low of $4,996.10 per ounce.

That largest daily loss in a month was driven by accelerated profit-taking from the five-week high of $5,419.37 per ounce, in addition to pressure from the rise of the US dollar.

US dollar

The US dollar index fell about 0.2% on Wednesday, retreating from a four-month high of 99.68 points and heading toward its first loss in the last three sessions, reflecting a decline in the US currency against a basket of global currencies.

As is well known, a weaker US dollar makes gold bullion priced in dollars more attractive to buyers holding other currencies.

Aside from profit-taking, the dollar is retreating ahead of very important US data releases, which will provide further evidence regarding the likelihood of the Federal Reserve cutting US interest rates during the first half of this year.

US interest rates

Federal Reserve Governor Christopher Waller said last week that he is open to keeping interest rates unchanged at the March meeting if February labor market data indicates that the labor market has “stabilized” after its weak performance in 2025.

According to the CME Group’s FedWatch Tool, markets are pricing a 96% probability that US interest rates will remain unchanged at the March meeting, while the probability of a 25 basis point rate cut stands at 4%.

In order to reprice those expectations, traders are awaiting later today the release of US private sector employment data for February, along with other data on the performance of the services sector during the same month.

Gold outlook

Bob Haberkorn, senior market strategist at RJO Futures, said gold prices appear to be facing negative pressure driven by liquidity concerns. “We have a strong dollar and high bond yields.”

Haberkorn added that these pressures are likely to be short-term, and safe-haven flows driven by geopolitical risks are expected to support higher gold and silver prices.

SPDR fund

Gold holdings in the SPDR Gold Trust, the world’s largest gold-backed exchange-traded fund, declined on Tuesday by about 2.29 metric tons, bringing the total down to 1,099.04 metric tons, down from 1,101.33 metric tons, which had been the highest level since April 21, 2022.

The euro fell in European trading on Wednesday against a basket of global currencies, extending losses for a third consecutive session against the US dollar and trading near a four-month low, as surging global energy prices driven by the Iran war weigh on the outlook for Europe’s economy.

The crisis is expected to push prices higher and accelerate inflation across the eurozone, placing growing inflationary pressure on policymakers at the European Central Bank.

At the same time, the European economy may require additional monetary support to limit the slowdown in economic activity, creating a complex policy dilemma between containing inflation and supporting growth.

Price Overview

Euro exchange rate today: the euro declined 0.35% against the dollar to $1.1575, down from the opening level of $1.1613, after touching a session high of $1.1620.

The euro ended Tuesday’s trading down 0.65% against the dollar, marking a second consecutive daily loss and hitting a four-month low of $1.1530, as the surge in global energy prices overshadowed data showing eurozone inflation came in above expectations in February.

Global energy prices

Global oil and gas prices surged due to the fallout from the US-Israeli war on Iran, which disrupted energy exports from the Middle East. Tehran’s attacks on ships and energy infrastructure led to the closure of shipping routes in the Gulf and halted production from Qatar to Iraq.

Brent crude rose more than 16% this week and reached a 20-month high of $85.07 per barrel, while European gas prices jumped 70% since the end of last week.

Views and analysis

Analysts at Wells Fargo said in a note that the euro faces a difficult situation. Europe’s natural gas storage refill season is about to begin, and the European Union is entering the season with record-low gas levels in storage, meaning it will need to purchase large amounts of energy at a time when prices could rise significantly.

George Saravelos, head of global FX research at Deutsche Bank, said the impact of the Iran war on EUR/USD revolves around one key factor: energy.

Saravelos added that a negative supply shock is currently forming, effectively acting as a direct tax on Europeans that must be paid to foreign producers in US dollars.

Analysts at ING wrote in a research note that the European Central Bank’s position has suddenly come into question, and they doubt the issue can be resolved in the very near term.

They added that the possibility of the ECB raising interest rates poses a serious risk to interest rate carry trades and could lead to a significant widening in eurozone government bond spreads.