EUR/USD rises to 1.1800 as USD hits six-week lows on US-Iran deal hopes, soft PPI
- EUR/USD extends gains for a seventh day, hitting its highest level since February 27.
- US-Iran talks optimism reduces safe-haven demand for the Dollar
- Softer-than-expected US PPI data adds pressure on the Greenback, supporting the Euro.
The Euro (EUR) edges higher against the US Dollar (USD) on Tuesday, with EUR/USD extending gains for a seventh consecutive day and returning to levels last seen when the US-Iran conflict began. At the time of writing, the pair is trading around 1.1800, up roughly 0.37% on the day.
The latest leg higher comes as risk appetite improves amid renewed hopes of US-Iran negotiations, with reports suggesting a second round of talks could take place as soon as this week after US President Donald Trump said Iran had reached out and signaled willingness to engage in further discussions.
This has raised expectations that a deal could still be reached, reducing safe-haven demand for the US Dollar and pushing Oil prices lower from recent highs. The US Dollar Index (DXY), which tracks the Greenback’s value against a basket of six major currencies, is trading around 98.00, its lowest level since March 2.
Adding to the Dollar’s weakness, the latest US Producer Price Index (PPI) data for March came in softer than expected. The headline PPI rose by 0.5% MoM, below market expectations of 1.2% and unchanged from the previous reading of 0.5%, which was revised down from 0.7%. On an annual basis, PPI increased by 4.0%, missing forecasts of 4.6% and easing from the prior 3.4%.
The data suggests that, despite the impact of elevated Oil prices, which was clearly reflected in last week’s Consumer Price Index (CPI) release, underlying price pressures at the producer level remain relatively contained, allowing the Fed to remain patient before considering any policy adjustments.
However, Oil prices remain elevated overall, keeping inflation risks alive and reinforcing a cautious stance among major central banks, with markets now pricing in around two rate hikes from the European Central Bank (ECB).
ECB President Christine Lagarde said on Monday in a Bloomberg interview that Europe is not at the epicenter of the fallout from the US–Iran conflict, adding that the economy is evolving between the ECB’s baseline and adverse scenarios. She reiterated that policymakers will remain data-dependent and stressed that the ECB does not have a tightening bias.
The International Monetary Fund (IMF) has also trimmed its growth outlook, forecasting euro area growth at 1.1% in 2026 and 1.2% in 2027, down from its January projections of 1.3% and 1.4%, respectively. For the United States, growth is now seen at 2.3% in 2026, slightly below the earlier 2.4% estimate, while the 2027 forecast has been revised up marginally to 2.1% from 2.0%.
ECB FAQs
The European Central Bank (ECB) in Frankfurt, Germany, is the reserve bank for the Eurozone. The ECB sets interest rates and manages monetary policy for the region. The ECB primary mandate is to maintain price stability, which means keeping inflation at around 2%. Its primary tool for achieving this is by raising or lowering interest rates. Relatively high interest rates will usually result in a stronger 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.
In extreme situations, the European Central Bank can enact a policy tool called Quantitative Easing. QE is the process by which the ECB prints Euros and uses them to buy assets – usually government or corporate bonds – from banks and other financial institutions. QE usually results in a weaker Euro. QE is a last resort when simply lowering interest rates is unlikely to achieve the objective of price stability. The ECB used it during the Great Financial Crisis in 2009-11, in 2015 when inflation remained stubbornly low, as well as during the covid pandemic.
Quantitative tightening (QT) is the reverse of QE. It is undertaken after QE when an economic recovery is underway and inflation starts rising. Whilst in QE the European Central Bank (ECB) purchases government and corporate bonds from financial institutions to provide them with liquidity, in QT the ECB stops buying more bonds, and stops reinvesting the principal maturing on the bonds it already holds. It is usually positive (or bullish) for the Euro.
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