Why EUR/USD Fell to July Lows Despite a Hawkish ECB and Strong Eurozone PMIs

EUR/USD ended the week of July 24 near 1.1370–1.1377, its lowest level in July, despite two ostensibly euro-positive events: the European Central Bank leaving rates unchanged with a hawkish bias and the Eurozone flash Composite PMI surging to a five-month high of 51.9 . The disconnect between positive fundamentals and a falling euro highlights the unusual strength of the countervailing forces — geopolitical risk, an oil shock, and US economic outperformance — that have kept the pair pinned near its 2026 lows.

The Slide: Why EUR/USD Fell Despite Good News

The ECB's hawkish hold was already priced in. As expected, the ECB kept its deposit rate at 2.25%, the main refinancing rate at 2.40%, and the marginal lending rate at 2.65% on July 23 . President Christine Lagarde acknowledged that some council members had called for a hike, but the market interpreted the overall tone as insufficient to drive a sustained euro rally . There was no element of surprise to fuel a breakout .

The Eurozone PMI beat was short-lived. The S&P Global Flash Eurozone Composite PMI came in at 51.9 in July, well above the 50.9 consensus estimate and up from 50.0 in June — marking the first expansion in four months . The euro initially jumped about 0.12% to around 1.1386 , but the gain was quickly reversed. The survey itself flagged "high inflation and renewed conflict in the Middle East clouding the outlook," which capped any enthusiasm .

The dollar's safe-haven bid overwhelmed everything. By late Friday, EUR/USD had slipped below 1.1380, the level that ING had identified days earlier as a near-term target . The pair closed near 1.1377 on July 24 .

The Offsetting Forces That Overwhelmed the Euro

Middle East conflict ignited safe-haven demand. The US launched a new round of strikes on Iran and Yemen's Houthis, who in turn targeted oil tankers in the Red Sea . The dollar firmed as investors sought liquidity and safe-haven assets, completing its best week in a month . Analysts warned that "even a hawkish hold from the ECB may struggle to generate a sustained rally in the euro" against this backdrop .

Oil surged past $100 a barrel. Brent crude climbed above $100 for the first time since May, briefly touching $100.14 before settling . Goldman Sachs flagged the risk of Brent exceeding $120 in Q4 if Strait of Hormuz disruptions continue . Higher oil prices fan inflation fears, lift US Treasury yields, and increase bets on Fed rate hikes — all dollar-supportive dynamics .

The US Services PMI jumped to 53.6. The US Services PMI printed at 53.6, well into expansion territory, widening the growth advantage of the US economy over the eurozone . While US Manufacturing PMI eased to 53.8, the composite reading remained firmly in expansion, keeping the dollar underpinned .

ING's Forecast and the Technical Picture

Near-term: ING targeted 1.1380 — and the pair hit it. On July 20, ING's Chris Turner wrote that with Brent above $90, EUR/USD might normally trade below 1.14, but a tighter-than-usual correlation between energy prices and short-dated euro swap rates was providing some support. He still favored a slip back under 1.14, eyeing 1.1380 . That level was breached late in the week, confirming a double-top pattern with the neckline at 1.1380 and opening the door to measured-move targets near 1.1210 .

Year-end: ING still sees 1.17–1.18. ING's FX team, led by Francesco Pesole, projects EUR/USD ending 2026 near 1.18, driven by expected Fed rate cuts and a softer US dollar in the second half of the year . The median year-end target across 29 institutional desks is 1.17 . However, ING has conceded that the call depends on de-escalation in the Middle East, lower oil prices, and a dovish Fed pivot — none of which are certain .

Outlook Ahead of the Fed's July 28–29 Meeting

The next major catalyst for the pair is the Federal Reserve's July 28–29 FOMC meeting. Markets expect the Fed to hold rates steady, but the focus will be on the dot plot and forward guidance . Surging oil prices have increased the risk of a hawkish hold — i.e., the Fed keeping the door open to further hikes, which would further support the dollar .

Uncertainty ahead of the meeting is keeping EUR/USD range-bound. Bears are eyeing 1.1300 on a break below 1.1400, with the next support at the 2026 low of 1.1325 . On the upside, resistance sits firmly at 1.1480; until buyers reclaim that level, the path of least resistance points south .

Factor	Directional Impact on USD
Middle East conflict escalation	Bullish (safe-haven flows)
Oil above $100/bbl	Bullish (inflation fears, rate-hike bets, higher yields)
US Services PMI 53.6	Bullish (growth outperformance)
ECB hawkish hold (priced in)	Neutral (no catalyst for euro)
Eurozone PMI 51.9 beat	Short-lived euro gain (quickly faded)
Fed meeting July 28–29 (hawkish risk)	Bullish (positioning defensive for USD)

Bottom line: EUR/USD is being squeezed between euro-positive data and powerful dollar-supportive forces — Middle East conflict, oil above $100, a strong US services PMI, and hawkish Fed expectations. ING's near-term retreat call has materialized, but their medium-term bullish euro view (1.17–1.18 year-end) depends on a de-escalation in the Middle East, lower oil prices, and a dovish Fed pivot later in H2. Until then, the pair remains vulnerable to further downside.