EUR/USD remains subdued near 1.1750 amid renewed US-Iran tensions

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EUR/USD edges higher after opening at a gap down, still remaining in the negative territory and trading around 1.1760 during the Asian hours on Monday.

EUR/USD weakens as USD gains on safe-haven demand amid renewed US–Iran tensions.
IRNA says Tehran refuses renewed US talks, citing “unrealistic expectations” and other concerns.
US Dollar strengthened as markets priced the Fed’s higher-for-longer stance amid persistent inflation and Middle East tensions.

EUR/USD edges higher after opening at a gap down, still remaining in the negative territory and trading around 1.1760 during the Asian hours on Monday. The pair comes under pressure as the US Dollar (USD) draws support from heightened safe-haven demand amid re-escalating United States (US)–Iran tensions.

Iranian state media, the Islamic Republic News Agency (IRNA), reported that Tehran has refused to resume talks with US officials, citing “unrealistic expectations,” among other concerns.

Iran has kept the Strait of Hormuz blocked since the US and Israeli strikes on February 28. Although authorities briefly signaled a reopening on Friday, they reversed the decision on Saturday after US President Donald Trump declined to lift the blockade on Iranian ports.

US President Trump confirmed on Truth Social that US representatives will travel to Islamabad for negotiations with Iran on Monday. However, he also criticized Tehran’s move to re-close the Strait and reiterated threats to target Iranian infrastructure, including power plants and bridges.

The US Dollar strengthens as markets price in a Federal Reserve (Fed) “higher-for-longer” stance, driven by persistent inflation and Middle East tensions. Attention now turns to Tuesday’s US Retail Sales data, expected to rise 1.3% MoM in March after 0.6% in February.

The Euro (EUR) found support as traders increased bets that the European Central Bank (ECB) could raise interest rates this year. ECB President Christine Lagarde acknowledged last week that elevated energy costs are pushing the Eurozone away from its baseline growth path, but stopped short of signaling imminent rate hikes.

The renewed blockade of the Strait of Hormuz has dampened optimism over normalized energy supply from key Middle East producers, fueling concerns about stagflation in the Eurozone.

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.