EUR/USD inches higher above 1.1500 amid hopes on US-Iran ceasefire talks
- EUR/USD trades with mild gains around 1.1520 in Monday’s early European session.
- The US and Iran explore a 45-day ceasefire ahead of the deadline.
- ECB policymakers emphasized that policy will remain restrictive until inflation sustainably returns to the target.
The EUR/USD pair posts modest gains near 1.1520 during the early European session on Monday. The Euro (EUR) strengthens against the Greenback amid optimism about the US-Iran ceasefire. The US March ISM Services Purchasing Managers Index (PMI) report is due later on Monday.
Bloomberg reported on Monday, citing Axios, that the US, Iran, and regional mediators are discussing terms for a possible 45-day ceasefire that could lead to an end of fighting. The source said that the chances of reaching a deal over the next 48 hours are low. Earlier, US President Donald Trump extended his deadline by 20 hours, posting a new deadline of Tuesday at 8:00 pm EST (00:00 GMT on Wednesday).
Data on Friday suggested US labor market conditions remained calm in March, though economists warned that a prolonged war in the Middle East posed a downside risk. "Our concern is that with the Middle East conflict showing little sign of coming to an imminent conclusion, an overlay of heightened geopolitical, economic and market angst is not going to incentivise business to suddenly start hiring now," said ING economist James Knightley.
Hawkish comments from the European Central Bank (ECB) policymakers could support the shared currency. The ECB has maintained a firm commitment to combating inflation. President Christine Lagarde and other Governing Council members have delivered consistent messages, emphasizing that policy will remain restrictive until inflation sustainably returns to the 2% target.
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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