The euro (EUR) saw a slight increase against the US dollar (USD) on Thursday, trading at 1.1880. This was a rise from the previous day’s low of 1.1833. The losses for the pair have decreased somewhat, influenced by a moderate appetite for risk and a strong U.S. non-farm payrolls (NFP) report contributing to USD weakness.
The postponed U.S. NFP report for January indicated that net payrolls increased by 130,000, nearly double the anticipated 70,000. The unemployment rate dipped to 4.3%, down from 4.4% in the prior month.
However, the concentrated job growth tempered some of the optimism among investors, as the healthcare sector made up almost two-thirds of the new jobs in January, and 2025 estimates were notably revised downwards. Still, Wednesday’s figures eased worries regarding the U.S. labor market’s health following the previous week’s ADP employment changes and disappointing JOLTS job openings.
Fed unlikely to cut rates before June
In the wake of the NFP report, futures markets adjusted their expectations for Fed rate cuts in the near future. According to CME’s Fed Watch tool, the likelihood of a rate cut in March has dropped to 5% from 20% prior to the report, while April’s chances decreased to 20% from over 40%. Nonetheless, investors believe there’s still a 60% chance for easing measures in June, coinciding with central bank chairman Kevin Warsh’s first monetary policy meeting.
On Thursday, the economic agenda will highlight speeches from European Central Bank officials, including Piero Cipollone and Philipp Rehn, along with German Bundesbank President Joachim Nagel.
In the U.S., traders are expected to tread cautiously ahead of Friday’s consumer price index, which is essential for a clearer understanding of the Fed’s monetary policy. Meanwhile, new jobless claims and home sales may offer some distraction.
(This story was corrected at 10:30 GMT on February 12 to clarify that the Wednesday low for EUR/USD was 1.1833, not 12.1833 as previously stated.)
Fed Frequently Asked Questions
Monetary policy in the United States is managed by the Federal Reserve Board (Fed), which focuses on sustaining price stability and fostering full employment. Adjusting interest rates is the key tool for accomplishing these objectives. If inflation rises too quickly beyond the Fed’s 2% target, interest rates may be raised to increase borrowing costs, making the U.S. more attractive for international investors, thereby appreciating the dollar. Conversely, if inflation falls below 2% or unemployment rises too high, the Fed might lower rates to encourage borrowing, which typically depreciates the dollar.
The Federal Reserve (Fed) conducts eight policy meetings annually where the Federal Open Market Committee (FOMC) reviews economic conditions and determines monetary policy. Twelve officials will participate in the FOMC meeting, including seven from the Board of Directors, the president of the New York Fed, and four of the other eleven regional reserve bank presidents, who serve on a rotating basis each year.
In unusual situations, the Federal Reserve may implement a policy called quantitative easing (QE), which significantly boosts credit flow in a stagnant financial system. This non-traditional approach is typically used during crises or periods of very low inflation, as seen during the Great Financial Crisis of 2008. It involves the Fed increasing the money supply by purchasing high-quality bonds from financial institutions, which generally leads to a weaker dollar.
Quantitative tightening (QT) is the opposite of quantitative easing, where the Federal Reserve stops buying bonds and refrains from reinvesting the principal of maturing bonds. This process tends to be beneficial for the value of the dollar.
