Published: July 22nd, 2026
The Euro started the week on firmer footing against the Dollar, despite a sharp deterioration in the conflict between Iran and Israel and renewed concerns over global growth. EUR/USD traded at 1.1436 as markets absorbed reports of further military strikes and mounting risks to energy supplies.
The single currency's apparent resilience, however, may be short-lived. Analysts argue that a prolonged rise in oil and gas prices is likely to weigh more heavily on the Eurozone than on the USA, reviving support for the Greenback after several months in which investors questioned its longer-term outlook.
Attention has also shifted to the European Central Bank's policy meeting on Thursday, July 23rd. Markets had expected another interest rate increase later in the year. Rising energy prices have introduced the possibility that policymakers could move sooner to prevent higher fuel costs from feeding into broader inflation.
Financial markets often respond to geopolitical crises through energy prices before they respond through economic data. That pattern has reappeared as traders assess the prospect of prolonged disruption to shipping through the Strait of Hormuz, one of the world's most important energy corridors.
The Eurozone remains a net importer of energy. Higher import costs reduce household purchasing power, raise production expenses for manufacturers and complicate the European Central Bank's efforts to return inflation sustainably to target. The United States faces a different set of incentives. Domestic energy production and net energy exports leave the economy less exposed to imported fuel costs than many of its advanced economy peers.
A note from ING said higher energy prices should favour a move in EUR/USD back below 1.14. The bank argues that the terms of trade deteriorate more rapidly for Europe when energy prices rise, leaving the Euro at a relative disadvantage even if global risk sentiment remains broadly stable.
The market's initial reaction suggests another calculation is being made. Recent US inflation data came in softer than expected, reinforcing the idea that underlying price pressures have been contained despite renewed geopolitical tensions. Traders seem unconvinced that higher energy prices alone will force the Fed into a more aggressive policy stance.
The more immediate policy question may lie in Frankfurt. Financial markets entered the week expecting the European Central Bank (ECB) to keep tightening policy later in the year. Recent developments have introduced the possibility that policymakers could accelerate that timetable if they judge rising energy prices to present a renewed inflation risk.
ING said there is a credible possibility of an unexpected rate increase at this week's meeting. Such a move would reinforce the ECB's inflation-fighting credentials before higher energy costs become embedded in wage negotiations and consumer expectations.
An earlier increase would likely give the Euro a lift in the short term. Currency markets remain highly sensitive to changes in interest rate expectations, particularly when those changes arrive unexpectedly. A surprise decision could push EUR/USD back above recent resistance levels and produce a stronger weekly close.
Central banks typically distinguish between temporary increases in energy prices and inflation generated by stronger domestic demand. Responding too aggressively to a supply-driven energy shock risks slowing an economy that is already showing signs of subdued growth. Responding too cautiously risks allowing inflation expectations to drift higher, making future price stability more difficult to restore.
Meanwhile, the currency itself remains technically constrained. EUR/USD has stabilised above its June low near 1.1325, although rallies continue to struggle below resistance around 1.1450. The pair also remains beneath both its 100-day moving average and the descending trendline established from April's high, indicating that the broader downward trend remains intact despite the recent period of consolidation.
The Dollar's muted performance at the start of the week shows the competing forces shaping currency markets. By conventional standards, geopolitical instability should strengthen the US currency. Investors often seek the safety of Dollar-denominated assets during periods of uncertainty.
That relationship has been more tenuous in recent sessions. USD has softened against several G10 currencies despite the deterioration in the Middle East. Investors appear to judge that the immediate inflationary consequences for the United States remain limited, while the burden of higher energy prices falls more heavily on Europe and other major importers.
Those crosscurrents help explain why EUR/USD has stayed in a relatively narrow range despite a steady drumbeat of geopolitical headlines.
The pair has repeatedly pulled buying interest around 1.1325 while bumping up against persistent selling pressure near 1.1450. Momentum has recovered from oversold conditions, although broader trend measures continue to favour the Dollar. Markets are waiting for a decisive catalyst before committing to the next directional move.
For now, the macroeconomic backdrop still points towards a modest Dollar advantage. Higher energy prices, slowing European activity and persistent geopolitical uncertainty are unlikely to provide a supportive combination for the single currency.
These short-term market moves are unfolding against a broader debate about the Dollar's future. Last year, analysts were questioning whether the currency's long period of dominance was entering a more fragile phase. Concerns ranged from trade disputes and expanding fiscal deficits to political pressure on the Federal Reserve and growing discussion of "de-dollarisation" across parts of the global economy.
A recent note from DNB Carnegie argues that those fears have yet to find convincing support in the data. The bank says the structural case for sustained Dollar weakness remains unpersuasive as many of the risks that unsettled investors have either failed to materialise or proved less significant than initially feared.
The bank points to the resilience of US institutions as one reason. Concerns about political interference in monetary policy have eased, with the Federal Reserve continuing to operate independently despite heightened political scrutiny. The broader constitutional framework has also demonstrated greater durability than many investors anticipated, with the courts continuing to constrain executive policymaking where necessary.
Markets ultimately respond to outcomes rather than narratives. Events this week suggest the Greenback retains many of the strengths that supported its global role before the recent debate about de-dollarisation gained pace.
