The euro has fallen to its lowest point in two weeks against the US dollar, pressured by rising energy prices and growing expectations of a Federal Reserve interest-rate hike. As of writing, the EUR/USD pair was trading 0.18% lower at 1.1571, while option traders are actively positioning to guard against further downside.

Market positioning indicators in the options market have now reached their most bearish level for the euro in nearly a month. Over the past nine trading sessions, there has been a continuous shift in preference toward the US dollar, marking the longest such trend since 2017. This defensive pivot comes as renewed conflict between the US and Iran has pushed oil and natural gas prices higher once again.

Higher energy costs are a negative factor for the euro, as they worsen the region's terms of trade. Additionally, following hawkish signals from Fed Chair Warsh last week, markets now price a 71% probability of a rate hike this month, up sharply from 38% last week. These twin risks have led Chris Turner, global head of markets at ING, to predict that the euro could slide to "around 1.15" against the dollar by the end of this month.

Kit Juckes, chief FX strategist at Societe Generale, commented: "The euro should fall further against the dollar this year, but the decline may not be as steep as I previously anticipated." He has set his year-end target for the pair at 1.15. The currency's outlook is also clouded by "collateral damage" from geopolitical risks, as the Russia-Ukraine conflict and Middle East hostilities show no signs of abating, and France is gearing up for a pivotal presidential election next year.

Valentin Marinov, head of G10 FX research and strategy at Credit Agricole, noted: "The euro is suffering collateral damage from geopolitical risks. European political and fiscal risks could also intensify following Germany's local elections this month and in the run-up to the 2027 French presidential election." Mark McCormick, chief FX strategist at Bank of Montreal, even suggested the euro could fall to 1.12 against the dollar as the French election approaches.

It is worth noting that low European natural gas inventories could reignite inflation, potentially forcing the European Central Bank to tighten monetary policy at a faster pace, which might act as a supporting factor for the euro. However, rising energy prices and higher interest rates could also weigh on the eurozone's already fragile economic recovery, which could, in turn, become a headwind for the single currency.