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EUR/USD stays on the back foot after mixed US labour-market report

  • EUR/USD remains on the defensive as mixed US labour data keep the Dollar supported.
  • Softer NFP contrasts with lower Unemployment Rate and firmer wage growth.
  • Attention turns to Fed commentary and University of Michigan sentiment data for fresh cues.

The Euro (EUR) edges lower against the US Dollar (USD) on Friday as traders react to a mixed batch of US labour-market data. At the time of writing, EUR/USD trades around 1.1638, remaining on the back foot for a seventh straight day as the Greenback retains a firm tone across the board.

Data released by the US Bureau of Labor Statistics (BLS) showed that Nonfarm Payrolls (NFP) rose by 50,000 in December, undershooting market expectations for a 60,000 increase and easing from November’s revised 56,000 gain. At the same time, the Unemployment Rate edged down to 4.4% from 4.6%, coming in below forecasts of 4.5%.

Average Hourly Earnings rose 0.3% MoM in December, matching expectations and improving from November’s 0.1% increase. On an annual basis, earnings growth accelerated to 3.8% from 3.6%, also coming in above forecasts.

Taken together, the report offered a mixed signal on the US labour market, with a weaker NFP headline contrasting with a lower Unemployment Rate and improving wage growth, suggesting that labour-market conditions remain relatively firm.

On the monetary policy front, the weaker pace of job creation, despite otherwise firm labour conditions, has reinforced expectations that the Federal Reserve will keep interest rates unchanged at the January 27-28 meeting, while still leaving the door open to a gradual easing path later in the year.

Looking ahead, attention turns to the University of Michigan’s preliminary January Consumer Sentiment survey, alongside speeches from Richmond Fed President Thomas Barkin and Minneapolis Fed President Neel Kashkari, for fresh insight into the economic and monetary policy outlook.

Fed FAQs

Monetary policy in the US is shaped by the Federal Reserve (Fed). The Fed has two mandates: to achieve price stability and foster full employment. Its primary tool to achieve these goals is by adjusting interest rates. When prices are rising too quickly and inflation is above the Fed’s 2% target, it raises interest rates, increasing borrowing costs throughout the economy. This results in a stronger US Dollar (USD) as it makes the US a more attractive place for international investors to park their money. When inflation falls below 2% or the Unemployment Rate is too high, the Fed may lower interest rates to encourage borrowing, which weighs on the Greenback.

The Federal Reserve (Fed) holds eight policy meetings a year, where the Federal Open Market Committee (FOMC) assesses economic conditions and makes monetary policy decisions. The FOMC is attended by twelve Fed officials – the seven members of the Board of Governors, the president of the Federal Reserve Bank of New York, and four of the remaining eleven regional Reserve Bank presidents, who serve one-year terms on a rotating basis.

In extreme situations, the Federal Reserve may resort to a policy named Quantitative Easing (QE). QE is the process by which the Fed substantially increases the flow of credit in a stuck financial system. It is a non-standard policy measure used during crises or when inflation is extremely low. It was the Fed’s weapon of choice during the Great Financial Crisis in 2008. It involves the Fed printing more Dollars and using them to buy high grade bonds from financial institutions. QE usually weakens the US Dollar.

Quantitative tightening (QT) is the reverse process of QE, whereby the Federal Reserve stops buying bonds from financial institutions and does not reinvest the principal from the bonds it holds maturing, to purchase new bonds. It is usually positive for the value of the US Dollar.

Author

Vishal Chaturvedi

I am a macro-focused research analyst with over four years of experience covering forex and commodities market. I enjoy breaking down complex economic trends and turning them into clear, actionable insights that help traders stay ahead of the curve.

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