EUR/USD drifts higher above 1.1600 amid hopes on US-Iran peace talks
The EUR/USD pair gathers strength to near 1.1630 during the early Asian session on Wednesday. The Euro (EUR) edges higher against the US Dollar (USD) after reports that the United States (US) and Iran may hold high-level talks as soon as Thursday. 
  • EUR/USD edges higher to around 1.1630 in Wednesday’s early Asian session.
  • Trump said the US is participating in talks with Iran to end the war.
  • Goldman Sachs analysts expect the ECB to hike rates in April and June.

The EUR/USD pair gathers strength to near 1.1630 during the early Asian session on Wednesday. The Euro (EUR) edges higher against the US Dollar (USD) after reports that the United States (US) and Iran may hold high-level talks as soon as Thursday. 

The US is seeking a diplomatic route to ending the war in the Middle East, which supports riskier assets such as the shared currency. Bloomberg reported on Wednesday that the US and a group of regional mediators are discussing the possibility of holding high-level peace talks with Iran as soon as Thursday, but they're still waiting for a response from Tehran. 

An Israeli official said a deal “does not appear to be tangible right now,” as Israel carried out another wave of strikes across Iran and Tehran launched attacks on Tel Aviv. Ongoing conflicts in the Middle East could boost safe-haven currencies such as the Greenback and act as a headwind for the major pair.

The European Central Bank (ECB) held its key interest rates steady at its March meeting last week, with the deposit rate at 2.00%. Despite the pause, mounting inflation fears driven by the Middle East conflict and soaring energy prices have spurred expectations of rate hikes. Goldman Sachs analysts said it expects the ECB to deliver two 25 basis point (bps) interest rate hikes in April and June, joining peers J.P.Morgan and Barclays. 

Euro FAQs

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%).

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.

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.

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.

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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