The EUR/USD pair remains subdued for the fifth consecutive session, holding steady around 1.0240 during the Asian trading hours on Monday. The Euro faces significant headwinds as the US Dollar strengthens following stronger-than-expected job growth in the United States (US) for December.
The US Bureau of Labor Statistics (BLS) reported on Friday that Nonfarm Payrolls (NFP) increased by 256,000 in December, far surpassing market expectations of 160,000 and exceeding the revised November figure of 212,000 (previously reported as 227,000). The Unemployment Rate also edged lower to 4.1% in December, down from 4.2% in November. However, annual wage inflation, as measured by Average Hourly Earnings, saw a slight dip to 3.9% from 4% in the previous reading.
This strong US labor market data is expected to reinforce the Federal Reserve’s (Fed) decision to maintain its cautious stance on interest rates, which is likely to continue supporting the Greenback against other currencies. According to the CME FedWatch Tool, financial markets now expect the Fed to keep its benchmark overnight interest rate in the 4.25%-4.50% range at its January 28-29 meeting.
Meanwhile, the Euro (EUR) faces additional challenges as traders brace for potential interest rate cuts by the European Central Bank (ECB). The ECB is expected to implement four rate cuts by summer, one at each of its meetings, as inflationary pressures in the Eurozone remain largely under control. ECB policymakers, including Bank of France Governor François Villeroy, have signaled that while price pressures may rise slightly in December, they intend to continue progressing toward the neutral rate “without a slowdown in the pace by summer,” assuming upcoming data confirms that inflationary pressures do not persist.
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