Euro holds losses around 1.1750 due to growing risk aversion

EUR/USD weakened as the US Dollar strengthened amid rising market risk aversion.
President Trump rejected Iran’s latest peace proposal, calling it “totally unacceptable.”
The Euro may strengthen amid a hawkish outlook for European Central Bank policy.

Akhtar Faruqui FXStreet

EUR/USD gains ground after opening at a gap-down, still holding daily losses near 1.1750 during the Asian hours on Monday. The pair remains in the negative territory as the US Dollar (USD) remains firm amid growing risk aversion.

US President Donald Trump described in a post on Truth Social that Tehran’s reply as “TOTALLY UNACCEPTABLE,” following reports that Iran proposed moving part of its highly enriched uranium stockpile to a third country while refusing to dismantle its nuclear facilities. According to US officials, Trump is set to arrive in Beijing on Wednesday and is expected to discuss Iran, among other issues, with Chinese President Xi Jinping.

Iranian state television reported that an Iranian official said Tehran’s response emphasized ending the conflict across all fronts, particularly in Lebanon, and addressing the security of shipping routes through the strait, though no details were provided on how or when the key waterway could reopen.

An extended Middle East conflict and the fragile ceasefire between the US and Iran may continue to support safe-haven demand for the Greenback, potentially weighing on the major currency pair in the near term.

US Bureau of Labor Statistics released data on Friday indicating that Nonfarm Payrolls (NFP) increased by 115K in April, down from March’s 185K reading but still exceeding the market forecast of 62K. At the same time, the Unemployment Rate remained unchanged at 4.3% in April, matching analysts’ expectations.

The Euro may gain ground due to the hawkish tone surrounding the European Central Bank (ECB) policy outlook. Traders expect a 25 basis point (bps) hike at the June meeting, with a total of three hikes anticipated by the end of 2026, 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

Akhtar Faruqui

FXStreet

Akhtar Faruqui is a Forex Analyst based in New Delhi, India. With a keen eye for market trends and a passion for dissecting complex financial dynamics, he is dedicated to delivering accurate and insightful Forex news and analysis.

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