EUR/USD edges higher as US-Iran headlines weigh on the US Dollar

EUR/USD edges higher on Friday as fresh geopolitical developments surrounding the US-Iran war weigh on the US Dollar (USD) and support the Euro (EUR). At the time of writing, the pair is trading around 1.1768, hovering near its highest level in over a week.

Reports suggest Iran has submitted a new proposal through Pakistani mediators in response to the latest US amendments, after Washington rejected an earlier Iranian offer that proposed leaving nuclear negotiations for a later stage. However, no details of the new proposal have been disclosed so far. Meanwhile, Iran’s state-run IRNA reported that Foreign Minister Abbas Araghchi has been briefing regional counterparts on Tehran’s stance on ending the war.

This has lifted hopes that peace talks may resume despite the current deadlock. In reaction, Oil prices have eased slightly from recent highs, while the US Dollar has slipped to two-week lows. However, the Greenback’s decline appears to be largely driven by suspected intervention by Japanese authorities in the FX market to curb excessive weakness in the Japanese Yen (JPY).

The US Dollar Index (DXY), which tracks the Greenback’s value against a basket of six major currencies, is trading around 97.88, down about 0.22% on the day at the time of writing.

On the data front, US manufacturing activity delivered a mixed picture. The ISM Manufacturing PMI held steady at 52.7 in April, matching its highest level since August 2022 but missing expectations of 53.0. In contrast, the S&P Global US Manufacturing PMI was revised higher to 54.5 from a preliminary reading of 54.0 and up from March’s 52.3, pointing to the strongest expansion in the sector since May 2022.

Traders also parsed comments from central bank officials after both the Federal Reserve (Fed) and the European Central Bank (ECB) kept interest rates unchanged in their monetary policy announcements earlier this week.

Dallas Fed President Lorie Logan, who dissented against the easing bias at the latest FOMC meeting, said the next policy move could be either a rate cut or a hike. Logan also noted that the Fed should avoid giving guidance that implies easing at this stage. Minneapolis Fed President Neel Kashkari warned that “a large enough price shock could put inflation expectations at risk,” potentially requiring a series of rate increases to maintain the Fed’s credibility in defending its 2% inflation target.

On the European side, ECB officials struck a cautious tone. Governing Council member Madis Müller said it is “increasingly likely” the ECB needs to raise rates. Meanwhile, Ireland’s Central Bank Governor Gabriel Makhlouf noted that “Euro area GDP suggests near-term headwinds to growth” and warned that “upside risks to inflation have intensified.”