The Euro US Dollar (EUR/USD) exchange rate rose on Monday. The latest Eurozone unemployment figures bolstered the currency pair amid increased bets on interest rate hikes from the European Central Bank (ECB). A risk-on impulse kept any gains for EUR/USD limited, however.
At time of writing the EUR/USD exchange rate was at around $1.0741, which was up roughly 0.9% from that morning’s opening figures.
The Euro (EUR) climbed higher on Monday. The single currency was boosted by the latest Eurozone unemployment figures, prompting increased market bets on further interest rate hikes from European Central Bank (ECB).
Eurozone unemployment remained unchanged at 6.5% in November, a record-low for the trading bloc and the lowest rate since 1998.
‘While inflation expectations are fairly well anchored right now, chances of higher trending wage growth remain an upside risk to inflation for this year. While there is no evidence of a wage-price spiral so far, the ECB has taken a hawkish turn and will remain worried about wage growth rising further anyway.’
The Euro also saw a boost from an above-forecast rise in German industrial production figures. Output for the sector rose by 0.2% versus a predicted increase of 0.1%. Analysts highlighted the recent slump in has prices as a key factor in the rise.
Gains for the Euro were potentially limited by a negative reading of investor morale in the Eurozone. A risk-on impulse also capped gains for the single currency on Monday.
US Dollar (USD) Exchange Rates Tumble amid Risk-On Mood
The US Dollar (USD) tumbled on Monday. The safe-haven ‘Greenback’ was pulled lower by a return of risk appetite, as well as a paring back of bets on aggressive interest rate hikes from the Federal Reserve.
Following evidence of a slowdown in wage growth last week, markets have begun to pare back bets on more aggressive interest rate hikes from the Fed. Analysts are now forecasting 25bps rate hikes from the Fed at its February and March meetings.
The potential for further political turmoil in the US added to the US Dollar’s woes on Monday. After winning a series of votes for Speaker of the House, Republican Kevin McCarthy is now set to see rules that will constrain his power on the house floor.
Looking to the week ahead for the Euro, a range of data releases on Friday are set to drive movement in EUR.
Full year GDP growth figures for Germany could have mixed effect on the Euro if they print as forecast. Whilst the German economy is forecast to have expanded in 2022, the rate is slower than the previous years. The data could add to fears of a recession for the trading bloc.
Also on Friday, a predicted uptick in Eurozone industrial production could push the Euro higher if November’s figures recover from the previous month’s decline.
Finally for the Euro, a narrowing in the trading bloc’s trade deficit could lend support to the Euro amid signs of a possible economic recovery.
For the US Dollar, a speech from Fed Chair Jerome Powell on Tuesday will be closely watched by investors for any hints regarding the Fed’s forward policy. Powell has previously been outspoken in his hawkish stance regarding further interest rate hikes. Any signals of further hikes could bolster USD.
On the other hand, the latest inflation figures on Thursday could potentially undermine any rate hike signs from the Fed. December’s inflation is forecast to slip which could pull the US Dollar lower if the figures print as expected.
Thursday’s jobless claims figures could help to stem any losses for USD, however. Claims are expected to remain close to recent levels, which investors may see as the sign of a tight labour market.
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