Euro drifts below 1.1550 as hopes of a swift US-Iran peace deal wane

The Euro (EUR) experienced a decline against the US Dollar (USD) on Tuesday due to ongoing tensions in US-Iran negotiations and surging oil prices, which impact oil-dependent Eurozone economies. The EUR/USD pair slipped to 1.1539 from a seven-week high of 1.1580. Washington and Tehran remain unable to reach an agreement to reopen the Strait of Hormuz and resolve claims over war damages, delaying hopes of a swift peace deal.

Reduced sea traffic through the waterway and rising crude prices, with Brent Oil trading above $87, add to the pressure on the Euro. On Monday, the Cleveland Federal Reserve (Fed) President Beth Hammack expressed hawkishness in the US, supporting the US Dollar and suggesting multiple rate hikes are needed to curb inflation. Investors anticipate the US Consumer Price Index (CPI) figures on Wednesday to influence the market.

UOB Group analysts note that the Euro's recent rally is losing momentum as it struggles to break above resistance levels, with a potential break below 1.1495 signaling a range-trading phase. The Euro is the official currency of 20 EU countries and the second-most traded currency globally, accounting for 31% of foreign exchange transactions in 2022.

The Eurozone's monetary authority, the European Central Bank (ECB), sets interest rates and manages monetary policy to maintain price stability, aiming to control inflation or stimulate growth. The ECB's decisions, made by the Governing Council eight times a year, are influenced by economic data such as GDP, PMIs, employment, and consumer sentiment.

A strong economy may lead to higher interest rates, benefiting the Euro, while weak data could cause it to fall.