Oil surge reignites inflation fears as ECB holds rates at 2.25%

By Marc Jones Thu, July 23, 2026 at 5:41 AM PDT | 4 min read

Publication date: 2026-07-23 12:41:19

LONDON, July 23 (Reuters) — A spike in oil prices toward $100 a barrel drove Europe's government borrowing costs to long-term highs on Thursday, as reignited inflation worries prompted some hawkish signals from the European Central Bank (ECB) while it held rates steady.

Share markets were also under pressure after an earnings miss from chipmaker STMicroelectronics sent its shares tumbling 15%, and Google-parent Alphabet announced plans to ramp up AI spending by an additional $15 billion to $200 billion for the year.

Oil Prices and Geopolitical Tensions

The main focus remained on the renewed surge in oil prices — and global borrowing costs — following the re-escalation of the Iran war.

• The Iran-aligned Houthis said on Thursday they had struck two Saudi oil tankers as part of a naval blockade on Saudi Arabia, threatening to create a second chokepoint on global oil supplies alongside Iran's near-closure of the Strait of Hormuz.
• The U.S. military carried out a new round of strikes on Iran, marking a 12th successive night of American attacks and prompting further Iranian retaliation.
• Brent crude prices jumped almost 5% to more than $98 a barrel, putting the psychological $100 threshold well within reach again.

European Bond Markets

Germany's 10-year bund yield — the benchmark for euro zone borrowing costs — rose above 3.2% for the first time since 2011, a time when oil was also on a tear and the bloc's debt crisis was about to break out again.

ECB Decision and Outlook

The ECB held rates at 2.25%, having lifted them in June.

"Uncertainty remains high and the full inflationary impact of the energy shock has yet to play out," the ECB said in its statement.

>

"The Governing Council is therefore closely monitoring the intensity and duration of the shock, as well as its indirect and second-round effects."

Markets had seen just a one-in-five chance of another interest rate hike at this meeting. However, they now see a four-in-five chance of a hike at the next meeting in September.

Morgan Stanley's analysts commented on the ECB's policy statement: "The messaging remained unchanged and open. We maintain our call for another rate hike in September, if energy prices remain elevated."

Asian Markets

In contrast to Europe's struggles, Asian markets gained overnight:

• The KOSPI surged more than 4% in Seoul, led by gains of 4.8% for SK Hynix and 3.7% for Samsung.
• Tokyo's Nikkei and Hong Kong's Hang Seng also ticked higher.

Wall Street Outlook

Wall Street futures pointed to a further dip later, after results from Alphabet and Tesla — the first two of the so-called "Magnificent Seven" megacap companies to report this season — failed to impress.

Charu Chanana, chief investment strategist at Saxo in Singapore, said: "U.S. megacaps may face more scrutiny because they are writing the cheques, while chipmakers, memory suppliers and infrastructure companies get paid earlier in the investment cycle."

Currency Markets

In currency markets, the euro dipped back below $1.14 following the ECB decision, having looked to be heading for a one-week high earlier in the session. Traders were now preparing for ECB chief Christine Lagarde's 1245 GMT press conference and any hints she may give.

Additional Economic Pressures

As well as the oil price rise, scorching summer weather in much of Europe this month looks set to hit harvests and push up food prices, while low water levels on key rivers could create awkward shipping bottlenecks.

Yen Slips Back to 40-Year Low

The Japanese yen was back at a 40-year low versus the dollar, as a brief lift — prompted by a Bloomberg report on Wednesday that Bank of Japan (BOJ) officials were open to raising rates at a faster pace — faded.

Japan's BOJ-sensitive 2-year government bond yield hit a 31-year high in Tokyo on the oil moves and rate hike talk, while Japan's finance minister issued his latest verbal warning about possible FX market intervention.

Kit Juckes, FX strategist at Societe Generale, said: "The consensus view blames a timid BOJ (for the recent yen fall), but I think the problem is that higher oil prices have dashed hopes of 1.5% GDP growth this year."

(Additional reporting by Ankur Banerjee in Singapore; Editing by Joe Bavier and Andrew Heavens)