Euro struggles to make gains on back of Iran peace deal

Despite the litany of headlines out of the war in Iran, volatility in the EUR/USD pair has been surprisingly subdued in the past few weeks.

The euro has finally broken out of its narrow trading range in the past fortnight, however, following both, the signing of the MoU to end the Iran war and secondly, expectations for a widening in rate differentials between the US and Euro Area.

The end to the conflict in the Middle East should be bullish for the euro, though the common currency is now trading around its lowest level since mid-March against the dollar. We see this as partly a consequence of the lasting damage of the war, with the Euro Area potentially heading for stagflation, while the US continues to power ahead almost immune to the downside effects of the energy crisis.

It’s worth remembering that this is also not a full peace deal. Both sides now have a maximum of 60 days in order to reach a long-term accord, so market participants may be reluctant to fully commit to risk on trading until officials put pen to paper on a more permanent peace agreement.