Rising oil prices put investors on the defensive on Monday, 7 September, as conflict in the Middle East and political uncertainty in Europe added to concerns about inflation. Attention was turning to U.S. consumer price data due later in the week, Reuters reported.

European shares struggled to move into positive territory. A U.S. holiday kept trading volumes light, with S&P 500 futures falling 0.2% while Nasdaq futures gained 0.2%.

Energy markets remained unsettled by the confrontation between Washington and Tehran. Iran said it would announce a restricted zone outside the Strait of Hormuz in the coming days, following U.S. strikes on three Iranian tankers and ballistic missile launches by Iran’s Islamic Revolutionary Guard Corps at two U.S. Navy ships.

Brent crude futures climbed 1.3% to $97.50 a barrel, reaching their highest level in seven weeks. The increase followed a rise of almost 8% last week, leaving oil prices 35% above their level in late February, before the war began.

Diesel prices have risen even more sharply. The fuel, used across transport, shipping, agriculture and manufacturing, reached record highs last week and now costs around 90% more than it did before the conflict.

With food and fuel becoming more expensive, investors increasingly expect central banks to raise interest rates. That makes this week’s U.S. inflation figures particularly important for markets.

“Central bank patience through the energy shock has been supportive of asset prices and the credit cycle,” said Bruce Kasman, global head of economics at JPMorgan. “However, central banks are now on the move.”

The European Central Bank is expected to raise rates to 2.5% on Thursday. Futures pricing also points to another increase, taking the rate to 2.75% by December.

In Japan, markets are pricing in a 75% chance of a quarter-point increase at the Bank of Japan’s meeting on 18 September, alongside a 60% probability of another move by December.

Expectations have also shifted towards higher U.S. rates following last week’s stronger-than-expected employment report. The economy added 162,000 jobs in August, leaving traders pricing in a 58% chance of a Federal Reserve rate increase at its 16 September meeting and a 70% chance of a move in October.

The prospect of an ECB increase helped the euro rise 0.14% to $1.1629. Even so, the currency has lost ground since reaching three-month highs in August, and analysts warned that political developments could limit further gains.

In Germany, the Alternative for Germany (AfD) finished first in Sunday’s state election in Saxony-Anhalt. Although it fell short of a majority, the result brought a far-right party within reach of state-level power for the first time since World War Two.

The AfD remains a long way from taking national power, but its proposal to abandon the euro has raised concerns about the currency’s longer-term outlook.

“This development is dangerous for the longer-term stability of the single currency,” said Kathleen Brooks, research director at XTB.

France is also drawing attention. Recent polls suggest far-right leader Marine Le Pen would likely win the first round of next year’s presidential election. Le Pen has previously supported leaving the euro.

“The next few years could see waves of political change in Europe and a shift to the right in the two largest economies. This may not be a problem for FX traders today, but it is a problem for tomorrow, and it could explain why the euro is one of the weakest currencies compared to its peers so far in 2026,” Brooks said.

The euro has fallen 1.1% against the dollar this year, making it the weakest-performing major currency. By comparison, the yen has gained 0.7%, supported partly by official intervention, while the pound has risen 0.4%.

The yen strengthened sharply on Monday, with the dollar dropping 1.2% to 154.32 yen as a burst of buying pushed the Japanese currency to a seven-month high.

That advance followed the yen’s strongest weekly performance in a month. Growing expectations of a Bank of Japan rate increase, together with the possibility of further official buying, prompted investors to unwind bets against the currency.