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Euro drifts higher above 1.1450 as US, Iran sign initial agreement to end war

  • EUR/USD drifts higher to around 1.1460 in Friday’s early Asian session. 
  • The US-Iran interim peace deal took effect, and the US declared an end to its blockade.
  • Traders piled into bets that the Fed will start raising interest rates as soon as late next month.

 The EUR/USD pair recovers some lost ground near 1.1460, snapping the two-day losing streak during the early Asian session on Friday. The Euro (EUR) strengthens against the US Dollar (USD) after US President Donald Trump signed a deal with Iran to end the war that has disrupted global energy supplies.

The United States (US) and Iran signed an initial agreement, kicking off 60 days of negotiations on a final deal to end the war, per CNN. Additionally, the US military earlier confirmed it had ended its blockade on Iranian ports near the Strait of Hormuz, as officials claim millions of barrels are once again flowing through the vital waterway. Positive developments surrounding the US-Iran peace deal could boost riskier assets, such as the shared currency, in the near term. 

The Federal Open Market Committee (FOMC) voted unanimously to keep its benchmark overnight borrowing rate unchanged in a range of 3.5%-3.75% on Wednesday. During the press conference, new Chairman Kevin Warsh said that “price stability” would be the Fed’s guiding principle. A hawkish hold from the Fed could lift the Greenback and create a headwind for the major pair. 

Futures traders are now pricing in a quarter-percentage-point rate hike at the Fed's September meeting, with some probability of a move as soon as next month’s meeting. 

Euro FAQs

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%).

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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Lallalit Srijandorn

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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