Euro edges higher above 1.1650 on tentative US-Iran ceasefire progress

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The EUR/USD pair posts modest gains near 1.1655 during the early Asian session on Friday. The Euro (EUR) strengthens against the US Dollar (USD) after reports that the United States (US) and Iran had ‌reached an agreement to extend a ceasefire.

EUR/USD trades with mild gains around 1.1655 in Friday’s early Asian session.
The US and Iran reach a tentative agreement, but the agreement still needs Trump’s sign-off.
The annual US PCE rates were in line with forecasts, but the monthly figures came in softer than expected.

The US and Iran reached a tentative agreement to open the Strait of Hormuz and start nuclear talks, though US President Donald Trump has not signed off on it yet, CNN reported on Thursday. Iranian officials have not yet commented on a potential deal.

Meanwhile, US Vice President JD Vance said that “a couple of language points” are still under discussion, but the sides are making progress in peace talks. Signs of progress in the US-Iran peace deal could provide some support to the riskier assets, such as the shared currency in the near term.

While the annual US Personal Consumption Expenditures (PCE) Price Index data were in line with forecasts, the soft monthly readings could provide some hope that the burst in prices over the previous month had begun to ease. This report signaled that the US Federal Reserve (Fed) could hold interest ‌rates unchanged for longer.

"The combination of core PCE, which came in a little bit softer, and the growth data also coming in a little softer sends a message that perhaps the Fed can be a little bit less aggressive with its higher-for-longer, which is somewhat risk-supportive," said Joel Kruger, market strategist at London-based LMAX Group.

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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