Euro starts recovering on US-Iran deal outlook

The euro rose in European trading on Monday against a basket of global currencies, beginning to recover from six-week lows against the US dollar and heading toward its first gain in the past three sessions, supported by buying activity from lower levels.

The single currency also benefited from a slowdown in the US dollar and a sharp decline in global oil prices, amid positive developments in peace talks between the United States and Iran and growing expectations for the reopening of the Strait of Hormuz.

With oil prices falling and inflationary pressures easing, market pricing for a June interest rate hike by the European Central Bank declined, while investors await additional economic data from the eurozone to reassess those expectations.

Price Overview

• Euro exchange rate today:

The euro rose against the dollar by 0.4% to $1.1649, compared to Friday’s closing level of $1.1602. The pair recorded an intraday low of $1.1628.

• The euro ended Friday down around 0.15% against the dollar, marking its second consecutive daily loss, after touching a six-week low of $1.1576 during the previous session.

• Last week, the euro lost 0.2% against the dollar, recording a second straight weekly decline due to rising US Treasury yields.

US Dollar

The US Dollar Index fell around 0.4% on Monday, pulling further away from a six-week high of 99.52 points and heading toward its first loss in the past three sessions, reflecting broad weakness in the US currency against a basket of global currencies.

Beyond profit-taking activity, the dollar weakened as market risk appetite improved, driven by rising optimism that the United States and Iran are close to reaching a peace agreement that could end the war in the Middle East.

Global Oil Prices

Oil prices fell by more than 6% at the start of the week, hitting their lowest levels in three weeks, as fears over supply disruptions from the Arabian Gulf eased amid increasing expectations that the Strait of Hormuz could soon reopen to oil tankers.

Latest Developments in the Iran War

• The United States and Iran are reportedly close to reaching a final agreement framework to end the war in the Middle East.

• Trump said that “a large part” of the draft agreement had already been negotiated, though not fully finalized, adding that “time is on Washington’s side” to secure a “good and suitable” deal.

• Sources said the proposed agreement includes extending the ceasefire for 60 days, allowing negotiators time to finalize the detailed terms required to permanently end the conflict.

• The agreement also reportedly includes reopening the Strait of Hormuz, ending the US naval blockade on Iranian ports, and allowing Iran to sell oil under specific exemptions.

• Sources added that several contentious issues remain unresolved, including oversight of the Strait of Hormuz, Iran’s complete surrender of highly enriched uranium, and the release of frozen Iranian assets.

• US officials said the agreement would not be signed on Monday and that final approvals could still take several days.

• Tasnim News Agency warned that the draft agreement could collapse due to disagreements over frozen Iranian assets.

European Interest Rates

• Sources told Reuters last week that the European Central Bank is highly likely to raise interest rates in June, given inflation expectations that are moving toward an undesirable scenario.

• However, with global oil prices falling, money markets reduced pricing for a 25 basis point ECB rate hike in June from 70% to 55%.

• Investors are now awaiting further eurozone economic data on inflation, unemployment, and wages to reassess those expectations.