Euro rebounds above 1.1500 on US‑Iran peace breakthrough, Fed holds rate

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The EUR/USD pair recovers some lost ground near 1.1515 during the early Asian trading hours on Thursday. The Euro (EUR) strengthens against the US Dollar (USD) on improved risk sentiment after US President Donald Trump signed the US-Iran MoU to end the war.

EUR/USD holds positive ground to around 1.1515
Trump and Pezeshkian signed the US-Iran MoU to end the war.
The Fed decided to hold its benchmark interest rate at its June policy meeting, as expected by the market.

The BBC reported late Wednesday that the White House stated that Trump and Iran’s Masoud Pezeshkian signed the memorandum of understanding to end the US-Israel war on Iran. The document has been signed electronically by the two leaders after Iranian parliamentary speaker Mohammad Bagher Ghalibaf and US Vice-President JD Vance electronically signed the agreement on Sunday.

Iran and the US are expected to formally sign an MOU on Friday in Geneva, per Bloomberg. Hopes of a US-Iran peace agreement could boost the riskier assets, such as the shared currency in the near term.

On Wednesday, the US Federal Reserve (Fed) voted unanimously to hold its benchmark federal funds rate in a range of 3.5% to 3.75% in its first gathering under Kevin Warsh’s leadership. Fed officials signaled the chance of higher rates as they assess the impacts of the Iran war on inflation.

During the press conference, new Chairman Kevin Warsh said that “Price stability” would be the Fed’s guiding principle. Money markets fully priced in a rate hike by October. A hawkish rate hold from the US central bank might lift the Greenback and cap the upside for the major pair.

Fed FAQs

What does the Federal Reserve do, how does it impact the US Dollar?

Monetary policy in the US is shaped by the Federal Reserve (Fed). The Fed has two mandates: to achieve price stability and foster full employment. Its primary tool to achieve these goals is by adjusting interest rates. When prices are rising too quickly and inflation is above the Fed’s 2% target, it raises interest rates, increasing borrowing costs throughout the economy. This results in a stronger US Dollar (USD) as it makes the US a more attractive place for international investors to park their money. When inflation falls below 2% or the Unemployment Rate is too high, the Fed may lower interest rates to encourage borrowing, which weighs on the Greenback.

How often does the Fed hold monetary policy meetings?

The Federal Reserve (Fed) holds eight policy meetings a year, where the Federal Open Market Committee (FOMC) assesses economic conditions and makes monetary policy decisions. The FOMC is attended by twelve Fed officials – the seven members of the Board of Governors, the president of the Federal Reserve Bank of New York, and four of the remaining eleven regional Reserve Bank presidents, who serve one-year terms on a rotating basis.

What is Quantitative Easing (QE) and how does it impact USD?

In extreme situations, the Federal Reserve may resort to a policy named Quantitative Easing (QE). QE is the process by which the Fed substantially increases the flow of credit in a stuck financial system. It is a non-standard policy measure used during crises or when inflation is extremely low. It was the Fed’s weapon of choice during the Great Financial Crisis in 2008. It involves the Fed printing more Dollars and using them to buy high grade bonds from financial institutions. QE usually weakens the US Dollar.

What is Quantitative Tightening (QT) and how does it impact the US Dollar?

Quantitative tightening (QT) is the reverse process of QE, whereby the Federal Reserve stops buying bonds from financial institutions and does not reinvest the principal from the bonds it holds maturing, to purchase new bonds. It is usually positive for the value of the US Dollar.