• EUR/USD softens to near 1.1635 in Friday’s early European session. 
• The US and Iran are getting closer, but they have not yet reached a deal.
• ECB rate hike bets might help limit the Euro’s losses. 

The EUR/USD pair loses momentum to around 1.1635 during the early European trading hours on Friday. Mixed signals surrounding the US-Iran peace deal remain the primary driver of volatility. Traders will keep an eye on the preliminary readings of Germany’s inflation later on Friday. 

The White House confirmed that the US and Iran have reached an agreement on a memorandum of understanding (MoU) to extend the ceasefire for 60 days to allow for formal negotiations, but US President Donald Trump has yet to give his approval. US Vice-President JD Vance said on Friday that the US and Iran still need to work out several sticking points before an agreement on the war can be reached.

Traders will closely monitor the developments surrounding the Middle East conflict. Any signs of rising tensions between the US and Iran could weigh on the Euro (EUR) against the US Dollar (USD). On the other hand, progress on the peace deal could underpin the riskier assets such as the shared currency in the near term. 

Hawkish remarks from the European Central Bank (ECB) policymakers could lift the EUR. ECB board member Isabel Schnabel stated that the central bank should raise interest rates in June, even if ongoing peace talks with Iran yield a deal, as the conflict has been far longer than projected and high energy prices are spilling into the broader economy. 

Financial markets have fully priced in two hikes in the ECB’s 2% deposit rate and see a nearly 50% chance of a third move over the next year. Economists are more cautious and see just two rates rise, followed by a cut in mid-2027, a Reuters poll showed.

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