Euro steadies below 1.1400, Lagarde speech in spotlight

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The EUR/USD pair holds steady near 1.1385 during the early European trading hours on Monday. Traders continue to assess the developments surrounding talks to end the US war with Iran.

EUR/USD trades flat around 1.1385 in Monday’s early European session.
The US and Iran agreed to halt attacks and meet in Doha on Tuesday.
Traders brace for the ECB's Lagarde speech on Monday.

The EUR/USD pair holds steady near 1.1385 during the early European trading hours on Monday. Traders continue to assess the developments surrounding talks to end the US war with Iran. The European Central Bank's (ECB) annual forum and the US June employment data will be the highlights later this week.

CNN reported on Monday that a US official said that the US and Iran will stand down for now after both sides traded fire near the Strait of Hormuz. Two countries plan to meet on Tuesday in Doha, Qatar.

Iran’s Foreign Minister Abbas Araghchi stated that responsibility for the Strait of Hormuz lies solely with Tehran and warned that any attempt to bypass its preferred route in the waterway will cause “tension and escalation.”

The Middle East tensions have continued to stoke inflation pressures, while a surprisingly hawkish debut from Kevin Warsh as a new Federal Reserve (Fed) chair earlier in the month has reversed market expectations for US rate cuts this year. This, in turn, could underpin the US Dollar (USD) against the Euro (EUR) in the near term.

ECB President Christine Lagarde will open the forum on Monday. Her speech could offer some hints about evolving central bank policies amid lower oil prices and stock market volatility. Any hawkish remarks from policymakers could provide some support to the shared currency.

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.