Euro Nears $1.18 on US-Iran Deal Optimism

The euro climbed toward $1.18, its highest level since April 20, as the US dollar’s safe-haven demand waned amid growing hopes for a US-Iran agreement. Washington proposed a one-page memorandum to Iran, detailing steps to reopen the Strait of Hormuz and lift the US blockade on Iranian ports, with investors awaiting Tehran’s response. Money markets have reduced expectations for European Central Bank rate hikes, now pricing in about 50 basis points of tightening, or two rate hikes, by year-end, with a 75% chance of a first increase in June. ECB board member Piero Cipollone recently stated that the likelihood of a rate hike had risen due to persistent inflation pressures, a view shared by other policymakers earlier this month.

The euro extended its gain toward $1.18, reaching its strongest level since April 20, as the US dollar’s safe-haven appeal faded amid growing optimism over a potential US-Iran agreement. According to Axios, the White House is close to a one-page Memorandum of Understanding with Iran to end the conflict and begin nuclear negotiations, the closest the parties have been to a deal since the conflict started. Tehran is expected to respond within 48 hours, though no agreement is finalized. Money markets have scaled back bets on European Central Bank rate hikes, now expecting the deposit facility rate to reach around 2.6% by December, reflecting two fully priced hikes, with a 75% chance of a first increase in June. On Wednesday, ECB board member Piero Cipollone said the likelihood of a rate hike had risen due to persistent inflation pressures, echoing similar remarks from other policymakers earlier this month.

The euro strengthened above $1.17, trading at its highest level since April 21, as the safe-haven appeal of the U.S. dollar weakened amid growing optimism over a potential US-Iran agreement. US President Donald Trump paused "Project Freedom," the operation guiding ships through the Strait of Hormuz, citing "great progress" in talks with Iran. Yet, he stressed that the US blockade of ships to and from Iranian ports would "remain in full force and effect," keeping uncertainty alive over the Strait’s future. Money markets now expect the ECB’s deposit facility rate to reach around 2.6% by December, reflecting two fully priced hikes and a possible third, with a 75% probability of a first rate increase in June.