Europe's markets have firmed as reports of ongoing peace talks between the US and Iran nudged oil prices down before what is widely expected to be the first European Central Bank interest rate hike in nearly three years.
The pan-European STOXX 600 and the euro both inched higher on Thursday as traders papered over a one-month low for MSCI's world share index after a near nine per cent plunge in Oracle's shares on Wednesday had buffeted Asia too.
As Brent reversed to $US92 a barrel on the revived peace hopes, focus was already turning to the ECB's likely rate hike, which follows weeks of hints from policymakers, but also some increasingly weak economic data.
"For markets, the key question is how this move is framed: 'one and done' or the beginning of a tightening cycle?" said Julien Lafargue, chief market strategist at Barclays Private Bank.
He said ECB president Christine Lagarde was likely to try to avoid committing to any follow-up moves to preserve "maximum policy optionality" given the ongoing Iran war.
A re-escalation in hostilities in the Middle East began this week with Monday's downing of a US Apache helicopter near the Strait of Hormuz, which sparked a series of tit-for-tat attacks across Iran and on US bases around the region.
Three Iranian sources and a European official told Reuters on Thursday that efforts to reach a preliminary peace deal with Washington had intensified, however, and that messages were being exchanged over a proposed 'memorandum of understanding'.
In currency markets, the euro was flat atjust over $US1.15 before the ECB rate decision on Thursday and its post-meeting media conference, where it will also detail a new set of in-house economic forecasts.
Inflation in the 21-country euro zone is already above three per cent, well in excess of the ECB's two per cent target, and economic growth is faltering.
The US dollar index, which measures the greenback's strength against a basket of six currencies, inched higher at just above 100.
That was firmly within the tight trading range it has sat in throughout the past week, having been recently pushed to its strongest levels since April when the US and Iran began negotiating a ceasefire.
Market expectations on the timing of a possible Federal Reserve rate hike are also simmering.
Fed funds futures are now pricing an implied 51.6 per cent probability that the Fed will increase interest rates at its two-day meeting on October 28, according to the CME Group's FedWatch tool.
The yield on the US 10-year Treasury bond was up one basis point at 4.5483 per cent, while Germany's 2-year yields, which are the most sensitive to the ECB's rate moves, rose 1.5 basis points (bps) to 2.72 per cent.
They reached 2.771 per cent in late March, the highest since July 2024. In the crypto markets, Bitcoin climbed 0.4 per cent to $US62,013.58, while ether rose 0.3 per cent to $US1,634.13, finding some footing after a sell-off as the upcoming SpaceX IPO drove a rotation out of cryptocurrencies and other speculative assets.
Gold ticked 0.3 per cent higher to $US4,083 after a four-day run of falls that had left it at a more than six-month low.
