Someone is fighting a war, but someone is reaping benefits. While the Middle East slides into a new round of escalation, the greenback is set to complete its best week in a month. The US dollar is trading near its highest level since early July. Traders are paying for protection ahead of the Fed meeting, and money is, as usual, flowing into the safe?haven asset.

Donald Trump said he is considering a "massive attack" on Iran to force Tehran into a deal, saying the Islamic Republic "hasn't felt enough pain." The Houthis responded by reporting strikes on Saudi tankers, the Strait of Hormuz is effectively closed, and oil has climbed above $100 a barrel for the first time in a long while. Goldman Sachs says the US dollar is becoming a kind of dividing line between net oil exporters and importers, and that split is gradually being priced into currency markets.

But it's not only geopolitics moving EUR/USD. Interest-rate volatility is coming to the fore. The yield on 10-year Treasuries has jumped to its highest level since January 2025. The futures market prices roughly a one-in-three chance of a 25bp Fed hike next week. A Bloomberg survey of 80 economists still expects a 25bp cut in the policy rate, but not until Q3 2027 — a quarter later than forecast a month ago. The divergence between market pricing and economists' forecasts is becoming clear.

Meanwhile, Washington has poured fuel on the fire of the trade war: the US is imposing 10–12.5% tariffs on imports from most major partners in response to the Supreme Court's decision to overturn previous tariffs.

European business activity dynamics

On the face of it, the euro has reason for optimism. Eurozone composite PMI unexpectedly jumped to 51.9 in July — the first reading above the 50 threshold since March. Germany staged a rebound after three months of decline, and France recorded its smallest contraction since February. S&P Global called it a "long-awaited revival" of activity.

Still, the euphoria may be short-lived. A new flare-up in the Middle East and rising oil prices could push the euro area economy back into relapse before the nascent upswing gains momentum.

Thus the US dollar is benefiting simultaneously from safe-haven status, its role as a hedge against an S&P 500 drop, and a rally in US bond yields. The euro's only ammunition is positive data — which may not survive the next salvo from the Middle East. How long can geopolitics keep the greenback elevated?

Technically, on the daily chart, EUR/USD is making a repeat test of the lower bound of the fair?value range 1.138–1.145. If the bears succeed, the risks of a resumption of the downtrend will rise, providing a basis for selling. Conversely, a rebound from support at 1.138 would be a trigger to open long positions.