EUR/USD strengthens above 1.1700 as Trump announces pause on Project Freedom

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The EUR/USD pair attracts some buyers to around 1.1720 during the Asian trading hours on Wednesday, bolstered by improved risk sentiment. US President Donald Trump said the Project Freedom and movement of ships through the Strait of Hormuz had paused.

EUR/USD gathers strength to near 1.1720 in Wednesday’s Asian session.
Trump said Project Freedom and the movement of ships through the Strait of Hormuz had paused.
EU urged the US to restore Turnberry trade terms ahead of the deal's first anniversary.

The Guardian reported on Tuesday that Trump said Iran and the US have mutually agreed that while the US blockade “will remain in full force and effect," Project Freedom will be paused. Trump added that this action was to see if an agreement between the two countries could be finalized and signed. Earlier Tuesday, US Secretary of Defense Pete Hegseth stated that the US-Iran ceasefire is in place despite attacks in the Strait of Hormuz.

Traders will closely monitor the developments surrounding the US-Iran ceasefire. Any signs of easing tensions in the Middle East could underpin riskier assets such as the Euro (EUR) against the US Dollar (USD).

‌The European Commission said on Tuesday that the European Union's (EU) trade chief has urged the US to swiftly restore the tariffs agreed in last year's EU-US trade deal. The Commission added that it would be beneficial if the main terms of that deal were in place ahead of its one-year anniversary at the end of July.

Maros Sefcovic visited US Trade Representative Jamieson Greer in Paris on Tuesday, with Trump's threat to raise tariffs on EU cars and trucks to 25% among the EU's main concerns, per Reuters.

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.

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