EUR/USD weakens below 1.1700 as traders brace for US CPI data, US-Iran peace talks

EUR/USD softens to near 1.1690 in Friday’s early Asian session.
A US delegation is preparing for peace talks in Islamabad, Pakistan, on Saturday.
Traders await the US March CPI inflation report on Friday for fresh impetus.

Lallalit Srijandorn FXStreet

The EUR/USD pair trades in negative territory around 1.1690 during the early Asian session on Friday. The Euro (EUR) weakens against the US Dollar (USD) as traders remain cautious about whether a fragile two-week ceasefire between the United States and ‌Iran would hold. All eyes will be on the US March Consumer Price Index (CPI) inflation report later on Friday.

Iranian Foreign Ministry spokesperson Esmaeil Baghaei said on Thursday that holding talks to end the war is contingent on the US adhering to its ceasefire commitments. He claimed that those commitments include a ceasefire in Lebanon, which the US and Israel insist was not part of the deal.

US Vice President JD Vance and senior envoys Steve Witkoff and Jared Kushner are preparing for talks in Pakistan this weekend on a potential long-term deal with Iran. A two-week pause in hostilities appears to be largely holding.

However, uncertainty remains high in the Middle East, and Israeli Prime Minister Benjamin Netanyahu said that the country will "continue to strike Hezbollah with force.” Persistent tension in this region could boost a safe-haven currency such as the Greenback and act as a headwind for the major pair in the near term.

The US CPI inflation report for March will be in the spotlight on Friday. The headline CPI is projected to see a rise of 3.3% YoY in March, compared to 2.4% in February, driven by soaring oil prices due to the Middle East war. In case of a softer-than-expected outcome, this could weigh on the USD against the EUR.

Across the pond, the European Central Bank (ECB) has adopted a hawkish tone, with policymakers signaling a shift toward potential further tightening if price pressures persist. Traders have ramped up bets, with markets now fully priced in two rate hikes and more than a 50% chance of a third move by December, according to Reuters.

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

Lallalit Srijandorn

FXStreet

Lallalit Srijandorn is a Parisian at heart. She has lived in France since 2019 and now becomes a digital entrepreneur based in Paris and Bangkok.

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