EUR/USD weakens below 1.1800 as US–Iran ceasefire talks bolster US Dollar
The EUR/USD pair trades in negative territory near 1.1780 during the early Asian session on Friday. The major pair retreats from eight-week highs as traders remain cautious ahead of the next meeting between the United States (US) and Iran, scheduled for the weekend. 
  • EUR/USD softens to around 1.1780 in Friday’s early Asian session. 
  • Trump said the US and Iran could clinch a permanent ceasefire, but uncertainty remains high. 
  • ECB policymakers maintain a data-dependent approach. 

The EUR/USD pair trades in negative territory near 1.1780 during the early Asian session on Friday. The major pair retreats from eight-week highs as traders remain cautious ahead of the next meeting between the United States (US) and Iran, scheduled for the weekend. 

US President Donald Trump stated on Thursday that he had spoken with Lebanese President Joseph Aoun and Israeli Prime Minister Benjamin Netanyahu. He further stated that Israel and Lebanon had agreed to a 10-day ceasefire, which will begin at 5 p.m. ET.

Talks between Washington and Tehran are expected to resume this weekend. Trump struck an optimistic tone for prospects that the US and Iran could clinch a permanent ceasefire ahead of its expiration next week. However, there could still be some market volatility approaching, which provides some support to the US Dollar (USD) and acts as a headwind for the major pair. 

The European Central Bank (ECB) officials are leaning toward keeping interest rates unchanged at the April policy meeting. ECB President Christine Lagarde stated 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. Financial markets now see a one-in-five chance of an ECB rate hike in the April policy meeting, but a move by June is nearly fully priced in, and a second hike in the autumn is also anticipated, according to Reuters. 

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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