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European stocks dropped on Thursday, with investors cautious ahead of a series of central bank meetings, as renewed speculation about U.S. involvement in the Israel-Iran conflict weighed on market sentiment.
As of 03:15 ET (07:15 GMT), the DAX index in Germany fell 0.7%, the CAC 40 in France slipped 0.7%, and the FTSE 100 in the U.K. dropped 0.4%.
U.S. Speculation on Joining Israel-Iran Conflict
Israel and Iran continued to exchange airstrikes on Thursday, but renewed speculation that the United States may join Israel in targeting Iranian nuclear and missile facilities has added to investor anxiety, threatening to escalate the regional conflict further.
U.S. President Donald Trump fueled this speculation on Wednesday when he stated, “I may do it. I may not do it. I mean, nobody knows what I’m going to do,” when asked about the possibility of U.S. military involvement. He further added, “I can tell you this, that Iran’s got a lot of trouble, and they want to negotiate.”
Bloomberg reported that senior U.S. officials are preparing for a potential strike against Iran as soon as this weekend, although the situation remains unclear.
Iranian Supreme Leader Ayatollah Ali Khamenei dismissed Trump’s calls for Iran’s surrender, warning that any U.S. military intervention would lead to “irreparable damage,” and emphasized that “The Iranian nation will not surrender.”
While Iran continues to deny allegations of seeking nuclear weapons, the International Atomic Energy Agency (IAEA) confirmed that Tehran had violated its non-proliferation obligations for the first time in 20 years.
Fed Holds Rates, Focus Shifts to European Central Banks
The Federal Reserve decided to keep its benchmark short-term interest rate unchanged at 4.25% to 4.5% on Wednesday, as expected. Fed Chair Jerome Powell maintained the central bank’s cautious stance on future rate cuts, citing the potential for increased inflation from President Trump’s trade tariffs. Powell reaffirmed the Fed’s projections of two rate cuts in 2025 but trimmed the outlook for rate cuts in 2026.
With U.S. markets closed for the Juneteenth holiday on Thursday, investor attention shifted to central banks in Europe. The Bank of England is widely expected to keep interest rates unchanged, and investors are closely monitoring policymakers’ votes and any guidance on the rate cut trajectory, with many analysts predicting a cut in August.
The Swiss National Bank (SNB) is also expected to lower its interest rates, possibly returning them to negative territory. Meanwhile, the Norges Bank is expected to maintain its current rate levels.
Conclusion
European stocks are feeling the pressure of geopolitical uncertainty, as speculation over U.S. involvement in the Israel-Iran conflict adds to market unease. Investors are also closely watching the upcoming decisions from central banks in Europe, particularly the Bank of England, SNB, and Norges Bank, for guidance on future rate cuts and monetary policy adjustments. As the global economic and geopolitical landscape evolves, market participants are likely to remain cautious in the near term.
