Despite some favorable inflation data from the US, the EUR/USD pair showed signs of decline on Tuesday, hinting that the Federal Reserve might actually consider lowering interest rates, as suggested by market predictions. Currently, the pair is trading at 1.1642, which reflects a drop of over 0.20%.
Euro dips even with solid US inflation figures as strong jobs report boosts dollar
Following the US consumer price index (CPI) report for December, which largely met expectations, the dollar gained some strength. The underlying inflation rate approached a tenth of the annual figure. This might seem to support a potential rate cut from the Federal Reserve; however, last Friday’s robust nonfarm payrolls report, a notable reduction in the unemployment rate, and a positive update from the four-week ADP employment change average all signify a resilient labor market.
Last year’s three rate cuts by the Fed were largely a reaction to labor market weaknesses, even in light of persistent inflation. Currently, however, the job market appears to be holding strong, and while prices are stable, they do seem to hover closer to 3% rather than the intended 2%.
According to the Interest Rate Stochastic Tool, money markets are reducing the likelihood of a 25 basis point cut by the Fed. Traders estimate that the federal funds rate has peaked at 3.23%, indicating a potential cut of about 52 basis points.
In the wake of the CPI report, US President Donald Trump took to his Truth social platform to once again criticize Federal Reserve Chairman Jerome Powell, stating, “US inflation statistics. This means Chairman Jerome ‘Too Late’ Powell should reduce interest rates—it makes sense!!! If he doesn’t, he will just remain ‘Too Late!’” The numbers are considerably rising, and he thanked Mr. Tariff.
St. Louis Fed President Alberto Moussallem, viewed as a neutral hawk, remarked earlier that the economy is projected to grow above its potential by 2026.
Upcoming on Wednesday is the Eurozone Economic Conference, where European Central Bank Vice President Luis Deguindos is scheduled to speak. In the US, traders will be focusing on the Producer Price Index (PPI) figures for October and November, the November retail sales data, and a series of Federal Reserve announcements.
Daily digest influencing market trends: Euro falls on US inflation report
- The US CPI aligned closely with predictions, showing a steady headline CPI of 0.3% month-on-month, mirroring November’s pace. Annual inflation was stable at 2.7%. Core CPI appeared to ease gradually, decreasing from 0.3% to 0.2% month-on-month, all of which was expected. Annually, the core inflation rate was maintained at 2.6%, slightly under market benchmarks, indicating a slow easing of inflation.
- On the job market front, data was solid. The four-week average of ADP employment changes rose from 11,000 to 11.75,000, hinting at some stabilization in private sector employment.
- In October, new home sales dipped by 0.1% from the prior month, falling from 738,000 to 737,000. However, the Department of Commerce data indicates a sharp annual increase, suggesting that lower mortgage rates and decreasing home prices are beginning to support the housing sector.
Technical Perspective: EUR/USD declines amidst focused selling pressure
EUR/USD showed resilience but was unable to surpass the crucial resistance at the 20-day simple moving average (SMA) of 1.1716, leading to a decline below the 1.1700 and 1.1650 thresholds. The Relative Strength Index (RSI) illustrates that sellers are in control, remaining under the neutral mark.
Should EUR/USD slip below 1.1600, the 200-day SMA may be reached at 1.1575. A breach of this level could pave the way for a drop to 1.1500 and the low recorded on August 1 at 1.1391. Conversely, if buyers reclaim the 50-day and 100-day SMAs at 1.1647 and 1.1663, respectively, the next target would be 1.1700. If that level is surpassed, traders might eye the 20-day SMA at 1.1716.
