- US NFP exceeds expectations, pushing EUR/USD below 1.1750.
- US economy shows stronger job growth in June, while the Fed takes a wait-and-see approach.
- ECB signals reconsideration of its interest rate cut decision from June.
The euro weakened against the US dollar on Thursday following the announcement of employment figures for June in the US. This data illustrates why the Federal Reserve is hesitant to lower borrowing costs just yet. Currently, the EUR/USD stands at 1.1744, reflecting a 0.45% decline.
The non-farm payroll (NFP) report stole the spotlight on Thursday, having been released a week earlier than usual due to the US Independence Day holiday. The results surpassed investors’ expectations, overshadowing May’s numbers and maintaining hopes for interest rate cuts. Other indicators revealed a drop in unemployment rates and steady average hourly earnings.
In breaking news, the White House announced that President Trump’s significant fiscal bill has successfully passed through Congress and is set to be signed at 5 PM on July 4th.
The HCOB Services PMI was published across the Atlantic and within the European Union, showing some positive momentum in economic outlook, although the German service PMI remains in contraction territory. Meanwhile, the European Central Bank (ECB) released its latest minutes, indicating some policymakers prefer to keep interest rates steady.
This week, traders will focus on upcoming German factory orders, speeches from ECB officials, and the Producer Price Index (PPI) results in the EU.
Daily Market Digest: EUR/USD Reacts to Strong NFP Data
- The US economy added 147,000 jobs in June, 110,000 more than analysts had predicted and up from 144,000 in May. Unemployment dipped from 4.2% to 4.1%.
- Initial unemployment claims for the week ending June 28 fell to 233,000, below the anticipated 240,000. This indicates a strong labor market and is lower than the previous week’s numbers. Additionally, the ISM Services PMI rose from 49.9 in May to 50.8 in June, signaling sector expansion.
- Atlanta Fed President Rafael Bostic expressed support for a cautious approach to monetary policy because of uncertainty in economic policy. He warned that rising prices could lead to increased inflation measurements over the coming year.
- As reported by Bloomberg, President Trump has successfully led a dramatic shift in U.S. domestic policy with the House passing a $3.4 trillion fiscal package that reverses many of Biden’s tax and spending cuts, and moves towards a cleaner energy economy.
- The EU HCOB Services PMI improved from 50 to 50.5 in June, indicating a rise in business activity. Cyrus DeLaruvia, chief economist at Hamburg Commercial Bank, noted that this change reflects a long stretch of weak growth.
- Germany’s HCOB Services PMI rose slightly, from 49.4 to 49.7, but is still in contraction.
Euro Outlook: EUR/USD Holds Around 1.1750
The EUR/USD fell to a three-day low of 1.1716 but still shows an upward bias. The Relative Strength Index (RSI) has recently moved out of the acquisition territory, producing a sell signal that sellers have exploited to push the rate below 1.1800.
If the pair continues to decline, it may test the low extension around 1.1700, potentially reaching the June 12 high of 1.1631. Conversely, if EUR/USD surpasses 1.1800, resistance can be expected around annual peaks at 1.1829, 1.1850, and 1.1900.
ECB FAQ
The European Central Bank (ECB), located in Frankfurt, Germany, serves as the reserve bank for the eurozone. It is tasked with setting interest rates and managing the region’s monetary policy, primarily aiming for price stability around 2% inflation. Adjusting interest rates is the main method used to achieve this goal.
In certain extreme situations, the ECB can implement quantitative easing (QE), allowing it to create euros and buy assets—usually government bonds—when traditional methods are insufficient for stabilizing prices. While QE typically leads to a weaker euro, it was employed during various economic crises, including the 2009-11 financial upheaval and the Covid pandemic.
Quantitative tightening (QT) is essentially the opposite of QE, occurring once an economic recovery is underway and inflation begins to rise. In this phase, the ECB halts bond purchases and stops reinvesting in previously held bonds, which generally benefits the euro.
