EUR/USD climbs to 1.1765-1.1770, highest since March as Iran diplomacy hopes undermine USD

EUR/USD scales higher for the eighth straight day as the USD slides to a fresh low since early March.
Hopes for Iran diplomacy and Fed rate uncertainty undermine the USD’s reserve currency status.
Hormuz risks could keep a lid on the market optimism, limiting USD losses and capping spot prices.

Haresh Menghani FXStreet

The EUR/USD pair is seen building on the previous day's strong intraday move up of over 100 pips and gaining some follow-through traction during the Asian session on Tuesday. This marks the eighth straight day of a positive move and lifts spot prices to a fresh high since early March, around the 1.1765-1.1770 region in the last hour.

Despite failed peace talks over the weekend, investors continue to move towards riskier assets amid hopes that the door for Iran diplomacy remains open. In fact, US Vice President JD Vance struck a cautiously optimistic tone on negotiations with Iran and suggested that meaningful progress has been made even as talks have yet to deliver a breakthrough. This, in turn, undermines the US Dollar's (USD) reserve currency status and acts as a tailwind for the EUR/USD pair.

Apart from this, the uncertainty over future interest rate moves by the US Federal Reserve (Fed) keeps the USD depressed near its lowest level since early March. That said, the instability surrounding shipping traffic from the Strait of Hormuz might keep a lid on the optimism and limit deeper USD losses. US President Donald Trump said that the U.S. Navy blockade of the strategic waterway has officially started and vowed to destroy Iranian warships that get near the blockade.

Iran responded with threats on all ports in the Persian Gulf and the Gulf of Oman, keeping geopolitical risks in play. Adding to this, fears that the ceasefire that is currently holding could collapse, and that the war could resume, might lend some support to the USD and hold back traders from placing aggressive bullish bets around the EUR/USD pair. The fundamental backdrop, however, backs the case for an extension of the pair's recent uptrend from the late March swing low.

Euro FAQs

What is the Euro?

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%).

What is the ECB and how does it impact the Euro?

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.

How does inflation data impact the value of the Euro?

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.

How does economic data influence the value of the Euro?

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.

How does the Trade Balance impact the Euro?

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.

Author

Haresh Menghani

FXStreet

Haresh Menghani is a detail-oriented professional with 10+ years of extensive experience in analysing the global financial markets.

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