EUR/USD remains depressed amid mixed Eurozone data and a hawkish Fed

The Euro (EUR) extends losses on Friday as mixed Eurozone macroeconomic data failed to offset the broad US Dollar's (USD) strength, with US Treasury yields surging amid speculation of a large Federal Reserve (Fed) rate hike next month. The EUR/USD pair languishes a few pips above 19-month lows at 1.1045, on track to complete a three-week losing streak.

Eurozone economy accelerated to 0.6% growth in the third quarter, according to preliminary Gross Domestic Product (GDP) estimates released earlier on Friday, while the yearly growth maintained a steady 1.3% pace, unchanged from the previous quarter.

Investors' optimism, however, has been capped by a softer-than-expected increase in employment and downbeat trade balance data. Preliminary Q3 Employment Change data showed a 0.1% rise against expectations of an improvement to 0.2% after another 0.1% uptick in Q2.

Finally, September’s Trade Balance showed a EUR 10.3 billion deficit, an improvement from the EUR 16.6 billion trade gap posted in August but more than twice the EUR 4.5 billion shortfall expected by the market.

Dollar surges as Fed hike expectations drive short-end yields higher

Meanwhile, the US Dollar maintains a bid tone, buoyed by a sharp recovery in US Dollar yields, as Federal Reserve (Fed) policymakers open the door for an XL rate hike at its December meeting.

Analysts at ING observe that “This week has seen a powerful, macro-driven rally in the Dollar,” with the move closely tied to a sharp repricing of the Fed’s near-term policy path.

“Short-dated US yields are close to 40bp higher since Tuesday morning, when the Fed's Christopher Waller mused over the need for a 50bp hike in December,” according to ING experts, who also affirm that “the market has since adopted the view that back-to-back December and January hikes look likely,” to explain how swiftly rate expectations have shifted in favour of the Dollar.

In the US calendar, the main focus on Friday will be October’s Producer Price Index (PPI) release, which is expected to add to evidence of the high price pressures in the US economy, and give further reasons for the Fed to raise borrowing costs. Headline inflation is seen accelerating to 6.6% year-on-year (Y-o-Y) growth from 6.3% in September, and core inflation is expected to remain growing at a 5% Y-o-Y rate, unchanged from the previous month.