EUR/USD loses traction below 1.1500 after US attacks Iran
- EUR/USD loses ground to near 1.1480 in Monday’s early Asian session.
Safe-haven flows amid the risk of escalation in the Israel-Iran conflict boost the US Dollar.
ECB policymakers signaled a rate pause in July.
The EUR/USD pair softens to around 1.1480 during the early Asian session on Monday. The Greenback edges higher against the Euro (EUR) as US President Donald Trump’s decision to join Israel’s war against Iran sharply escalates the conflict. Traders will closely monitor the developments surrounding the Middle East conflict.
The United States (US) entered the conflict between Israel and Iran over the weekend, with American warplanes and submarines targeting three Iranian facilities in Iran, Fordo, Natanz and Isfahan. Trump said Iran’s key nuclear enrichment facilities had been “totally obliterated” and warned of “far greater” attacks unless Iran agreed to make peace. The rising tensions after the US bombed Iran's nuclear sites boost the safe-haven currency like the Greenback and act as a headwind for the major pair.
Across the pond, the European Central Bank (ECB) cut interest rates for the eighth time in a year earlier this month to support a sluggish recovery in the Eurozone but clearly signaled a pause in July. ECB President Christine Lagarde said that rate reductions are coming to an end as the central bank is now “in a good position” to deal with prevailing uncertainties. The hawkish tone from the ECB could help limit the Euro’s losses in the near term.
Euro FAQs
The Euro is the currency for the 19 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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