EUR/USD holds gains above 1.1700 on US-Iran ceasefire extension
- EUR/USD drifts higher to near 1.1710 in Thursday’s early Asian session.
- Trump said he has not set a firm deadline to receive an Iranian proposal.
- ECB’s Kazaks said the central bank has the ‘luxury’ to wait on interest rate rises.
The EUR/USD pair gathers strength to around 1.1710 during the early Asian session on Thursday. The Euro (EUR) strengthens against the US Dollar (USD) as US President Donald Trump’s extension of a ceasefire with Iran revives risk appetites. Traders brace for the preliminary reading of the S&P Global Purchasing Managers Index (PMI), which will be released later on Thursday.
Bloomberg reported on Tuesday that the US is extending the ceasefire with Iran at Pakistan’s request as it waits for a unified proposal from Iran. This development eases fears of a renewed conflict that had pushed energy prices sharply higher, lifting the shared currency as a riskier asset.
Nonetheless, tensions remain high as Tehran keeps a tight grip on the Strait of Hormuz, controlling passage through the trade route and firing on ships. Iran’s top negotiator and parliament speaker, Mohammad Bagher Ghalibaf, stated Israel’s warmongering and “flagrant” ceasefire breaches made reopening the Strait of Hormuz “impossible”.
Trump said that there is "no time pressure" in dealing with the ceasefire or talks with Iran and that there is "no time frame" on when the war might end.
The European Central Bank (ECB) officials are leaning toward keeping interest rates unchanged at the April policy meeting. ECB Governing Council member Martins Kazaks said on Wednesday that the central bank has the ‘luxury’ to wait on interest rate rises.
While a hold is expected in the April policy meeting, Barclays analysts anticipate the focus to shift toward potential 25 basis point (bps) hikes in June and September to combat an energy-driven inflation surge.
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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