EUR/USD holds gains above 1.1800 amid Middle East ceasefire hopes
The EUR/USD pair holds positive ground near 1.1805 during the early Asian session on Thursday. The Euro (EUR) edges higher against the US Dollar (USD) amid risk-on sentiment, bolstered by optimism over the ceasefire between the US and Iran. 
  • EUR/USD gains traction around 1.1805 in Thursday’s early Asian session. 
  • Signs of easing tensions in the Middle East lift the Euro against the US Dollar. 
  • ECB policymakers are leaning toward holding the rates in April. 

The EUR/USD pair holds positive ground near 1.1805 during the early Asian session on Thursday. The Euro (EUR) edges higher against the US Dollar (USD) amid risk-on sentiment, bolstered by optimism over the ceasefire between the US and Iran. 

Traders have piled into riskier assets, such as the shared currency, on hopes for another round of talks between the US and Iran. The Associated Press reported on Wednesday that both countries are closer to extending a ceasefire and restarting negotiations about a longer-term peace deal, even as a standoff intensifies over the Strait of Hormuz.

“Signs of de-escalation in the Middle East have lifted risk appetite, with falling oil prices helping ease inflation concerns,” said Adam Turnquist, chief technical strategist for LPL Financial.

The European Central Bank (ECB) policymakers are leaning toward keeping interest rates unchanged at the April policy meeting. ECB President Christine Lagarde said this week that the central bank needs to be “completely agile” on rates but stressed that it doesn’t have a bias toward raising them. However, traders see rate hikes as inevitable, expecting two quarter-point increases this year.

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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