FTSE 100 Declines as Middle East Tensions and ECB Policy Weigh on Markets

London's FTSE 100 index fell on Thursday as investors processed escalating military tensions in the Middle East and a hawkish monetary policy hold from the European Central Bank. The broader risk-off sentiment sent European equities lower and fueled volatility in commodity and currency markets.

Market Snapshot

The FTSE 100 finished the session down 0.7%, according to a report from Investing.com. Other major European indices saw steeper declines, with Germany’s DAX falling 1.8% and France’s CAC 40 shedding 1.6%.

Key market movements included:

• Brent crude oil surged 6.3% to $100.02 a barrel amid fears of supply disruptions.
• The British pound weakened against the U.S. dollar, falling 0.4% to 1.3319.
• Gold futures reversed course, dropping 2.4% to $4,050.20 an ounce.

Geopolitical Headwinds

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Market sentiment soured following several reports that pointed to a widening conflict in the Middle East. Kuwait’s Ministry of Defence confirmed a drone attack on the Al-Abdali border crossing with Iraq.

Separately, U.S. President Donald Trump stated on Truth Social that Houthi forces had struck two Saudi Arabian ships. The President warned that the U.S. would hold Iran responsible for any repeat attacks, threatening "major military punishment." In response, Iranian Foreign Minister Abbas Araghchi posted on the social media platform X that any aggression would compel a "powerful and decisive response."

ECB Holds Firm, Signals Hike

The European Central Bank held its main deposit rate steady at 2.25%, a move that was widely anticipated. However, the central bank's commentary signaled that an interest rate hike in September is increasingly likely, citing a "highly volatile" outlook for energy prices.

The ECB raised its 2026 inflation forecast to 3.0% from a previous 2.6% and trimmed its GDP growth projection for the same year to 0.8%. According to an analyst from ING cited in the report, the central bank's own projections point toward future tightening unless energy prices fall significantly.