Risk-Off Sweeps Markets as Trump Flags Possible Iran Strike

The ECB held steady but stayed cautious. President Christine Lagarde acknowledged modest improvements in euro-area activity. Energy-related inflation risks remain elevated, she said. The Governing Council unanimously left policy unchanged. No second-round inflation effects have emerged, Lagarde said. September's decision will depend entirely on incoming data.

The session finished in classic risk-off mode. Oil finished sharply higher, Treasury yields climbed, and equities – particularly technology stocks – came under heavy selling pressure. The combination of a Fed meeting next week and unresolved Middle East developments leaves investors facing elevated uncertainty on both the geopolitical and monetary policy fronts. For a broader view of currency market sentiment, see the forex market analysis page.

Trump's comments that he is "close to making a decision" on a strike larger than any previous operation added a fresh layer of uncertainty. That helped fuel another sharp rally in oil prices and kept traders positioned defensively. The dollar's strength reflected that move away from risk.

One technical highlight heading into the new trading day: the dollar index held above a key moving average, traders said, suggesting the rally could extend if oil stays elevated. The euro slipped against the greenback. The yen remained under pressure despite the risk-off tone. Sterling also weakened as UK political uncertainty weighed.