Euro slips as Iran deal doubts lift demand for the US Dollar
- US consumer sentiment hits a record low, inflation expectations move higher.
- Waller signals rate-hike risk if expectations become unanchored.
- ECB officials split as energy shock fuels June hike talk.
The Euro (EUR) retreats by 0.14% during the North American session on Friday amid growing speculation that the US and Iran may reach a deal to end the conflict. The Greenback is recovering some ground, underpinned by Oil prices trimming some of its earlier losses. The EUR/USD pair trades at 1.1598, poised to end the week with losses of around 0.20%.
EUR/USD weakens as mixed Iran headlines revive Dollar demand
Middle East headlines continued to drive the financial markets, with mixed messages and people denying directives about Iran’s not shipping uranium abroad and the content of a peace draft sent by Washington to Tehran. In the meantime, the Pakistan Army Chief is visiting Tehran, but according to Al Arabiya, this does not mean a deal is within reach.
Wall Street Journalist Laurence Norman posted on his X account that “draft deals circulating are inaccurate.”
As of writing, Kevin Warsh is being sworn in at the White House as the new Federal Reserve Chairman.
Data from the US showed that Consumer Sentiment deteriorated sharply, according to the University of Michigan, dropping from 48.2 in its May preliminary reading to 44.8, an all-time low, below economists' forecasts of 48.2. The survey revealed that households are concerned about the cost of living, indicating that high prices are “eroding their personal finances, up from 50% last month,” said Joanne Hsu, the director of the survey.
Inflation expectations had risen from 4.7% to 4.8% over the next twelve months and from 3.5% to 3.9% over the next five years.
In the meantime, Fed Governor Christopher Waller said that he doesn’t expect to support a change in the policy rate yet, but favoured removing the easing bias from the statement. He added that if inflation expectations start to become unanchored, he “would not hesitate” to support a rate hike.
In Europe, the European Central Bank (ECB) President Christine Lagarde said that inflation expectations are “still” near the the 2% target, despite the ongoing rise of energy prices due to Iran’s war.
ECB’s Muller said he sees a strong case for a rate hike in June due to the recent surge in energy prices.
Data-wise, the German economic docket was busy. The GDP for Q1 2026 showed that the economy expanded by a minimal 0.4% YoY. Recently, the IFO Business Sentiment rose unexpectedly, but the economic outlook looks gloomy, according to the survey.
EUR/USD Price Forecast: Technical outlook
In the daily chart, EUR/USD trades at 1.1599. The pair remains capped in the near term, trading below the clustered simple moving averages around 1.1655, which act as immediate topside resistance and keep the recent recovery in check. Momentum has faded, with the 14-period Relative Strength Index slipping towards the 40 region, which hints at lingering downside pressure despite price holding modestly above the broken ascending trend-line area.
On the downside, initial support is located near the former uptrend break around 1.1567, where a daily close below would open the door toward the deeper structural floor around 1.1290. On the topside, a move above the triple simple moving average barrier at 1.1655 would be needed to ease the current bearish bias, with the next notable resistance emerging near the more distant descending trend-line break around 1.1816.
(The technical analysis of this story was written with the help of an AI tool.)
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.