Euro gathers strength to near 1.1650 on US-Iran peace progress

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The EUR/USD pair gathers strength to around 1.1640 during the early Asian session on Monday. The Euro (EUR) edges higher against the US Dollar (USD) as US-Iran peace deal hopes improve risk sentiment.

EUR/USD drifts higher to near 1.1640 in Monday’s early Asian session.
The US and Iran have signaled progress in talks to end the war.
ECB June rate hike case is nearly sealed but July is fully open, said Reuters.

Senior US officials said on Sunday that the US and Iran are closing in on a deal that would reopen the Strait of Hormuz, even as US President Donald Trump said he won’t “rush” into an agreement, per Bloomberg. Signs of progress on the peace deal could lift the shared currency in the near term.

However, the combatants remain at loggerheads over Iran’s enriched uranium stockpile and tolls on the strategically vital Strait of Hormuz. Tehran maintains a tight grip on shipping through the Strait of Hormuz, and the US refuses to lift its naval blockade on Iranian-linked vessels.

Across the pond, the case for the European Central Bank (ECB) rate hike in June is nearly sealed, but the central bank is likely to be noncommittal about any further move, looking to temper bets for a quick follow-up step in July, according to Reuters. The ECB decided to leave the key interest rates unchanged ‌in April but it debated a hike and hinted that a move in the June policy meeting was likely given persistently high energy costs.

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.