Euro consolidates below its highest level since June 17 as Mideast tensions support USD

The EUR/USD currency pair began the week on a subdued note, hovering around 1.1550 as it neared a fresh high since June 17. This surge was driven by concerns over Middle East tensions supporting the US Dollar (USD). The US Nonfarm Payrolls (NFP) report revealed a loss of 23,000 jobs in July, falling short of expectations. Additionally, the previous month's data was revised lower, showing an addition of 20,000 jobs instead of 57,000.

Wage inflation, measured by the Average Hourly Earnings, eased to 3.2% from 3.4%. The unemployment rate also dropped to 4.1% from 4.2% in June, casting doubt on the likelihood of a US Federal Reserve (Fed) rate hike. Geopolitical uncertainties surrounding the Strait of Hormuz kept the USD afloat. The USD Index (DXY) showed signs of recovery from its lowest level since June 17, exerting a headwind on EUR/USD.

Traders opted to wait for further developments related to the Middle East crisis, avoiding decisive bets. Iran and Oman reportedly nearing a deal to establish a safe shipping route through the Strait, though Tehran warned of no immediate reopening. Meanwhile, Iran-backed Houthi militants in Yemen claimed an attack on Saudi Arabia's Jazan refinery, and a tanker from Abu Dhabi National Oil Co. faced an attack in the Strait.

These events kept geopolitical risk premiums in play, fueling inflation concerns and expectations of at least one Fed interest rate hike in 2026. The mixed economic backdrop advised caution before positioning for the EUR/USD pair's further upward move from the mid-1.1300s region. Market focus shifted to the upcoming US consumer inflation figures, due on Wednesday, which would provide more insights into the Fed's policy direction.

Additionally, geopolitical headlines would influence USD price dynamics and create short-term trading opportunities around EUR/USD.