EUR/USD edges higher above 1.1700 on US-Iran peace optimism, US NFP data looms

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The EUR/USD pair posts modest gains around 1.1730 during the early Asian session on Monday, supported by growing optimism surrounding a potential US-Iran peace deal. Markets might turn cautious later in the day ahead of the highly-anticipated US Nonfarm Payrolls (NFP) report for April.

EUR/USD trades with mild gains near 1.1730 in Friday’s early Asian session.
Growing optimism surrounding a potential US-Iran peace deal lifts the Euro.
All eyes will be on the US April NFP report on Friday.

The US President Donald Trump administration has been waiting for Iran to respond to its proposal to reopen the Strait of Hormuz and end the war. On Wednesday, an Iranian official said that it was reviewing a US peace proposal that sources said would formally end the war while leaving unresolved the critical US demands that Iran suspend its nuclear program and reopen the Strait of Hormuz.

A de-escalation in Middle East tensions could undermine a safe-haven currency such as the Greenback and act as a tailwind for the major pair.

The US April jobs data will take center stage later on Friday. The US economy is expected to add 62,000 jobs in April, while the Unemployment Rate in the US is projected to remain steady at 4.3% during the same period. A strong jobs report could lead the US Federal Reserve (Fed) to maintain higher interest rates for longer, boosting the US Dollar (USD) against the Euro (EUR).

Euro FAQs

What is the Euro?

The Euro is the currency for the 20 European Union countries that belong to the Eurozone. It is the second most heavily traded currency in the world behind the US Dollar. In 2022, it accounted for 31% of all foreign exchange transactions, with an average daily turnover of over $2.2 trillion a day. EUR/USD is the most heavily traded currency pair in the world, accounting for an estimated 30% off all transactions, followed by EUR/JPY (4%), EUR/GBP (3%) and EUR/AUD (2%).

What is the ECB and how does it impact the Euro?

The European Central Bank (ECB) in Frankfurt, Germany, is the reserve bank for the Eurozone. The ECB sets interest rates and manages monetary policy. The ECB’s primary mandate is to maintain price stability, which means either controlling inflation or stimulating growth. Its primary tool is the raising or lowering of interest rates. Relatively high interest rates – or the expectation of higher rates – will usually benefit the Euro and vice versa. The ECB Governing Council makes monetary policy decisions at meetings held eight times a year. Decisions are made by heads of the Eurozone national banks and six permanent members, including the President of the ECB, Christine Lagarde.

How does inflation data impact the value of the Euro?

Eurozone inflation data, measured by the Harmonized Index of Consumer Prices (HICP), is an important econometric for the Euro. If inflation rises more than expected, especially if above the ECB’s 2% target, it obliges the ECB to raise interest rates to bring it back under control. Relatively high interest rates compared to its counterparts will usually benefit the Euro, as it makes the region more attractive as a place for global investors to park their money.

How does economic data influence the value of the Euro?

Data releases gauge the health of the economy and can impact on the Euro. Indicators such as GDP, Manufacturing and Services PMIs, employment, and consumer sentiment surveys can all influence the direction of the single currency. A strong economy is good for the Euro. Not only does it attract more foreign investment but it may encourage the ECB to put up interest rates, which will directly strengthen the Euro. Otherwise, if economic data is weak, the Euro is likely to fall. Economic data for the four largest economies in the euro area (Germany, France, Italy and Spain) are especially significant, as they account for 75% of the Eurozone’s economy.

How does the Trade Balance impact the Euro?

Another significant data release for the Euro is the Trade Balance. This indicator measures the difference between what a country earns from its exports and what it spends on imports over a given period. If a country produces highly sought after exports then its currency will gain in value purely from the extra demand created from foreign buyers seeking to purchase these goods. Therefore, a positive net Trade Balance strengthens a currency and vice versa for a negative balance.