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Forex Today: Markets await Eurozone inflation and US employment data

Here is what you need to know on Wednesday, January 7:

Investors gear up for a potential increase in market volatility on key macroeconomic data releases on Wednesday. Eurostat will publish preliminary December inflation data in the European session. In the second half of the day, the US economic calendar will feature ADP Employment Change data for December, JOLTS Job Openings for November and the Institute for Supply Management's (ISM) Services Purchasing Managers' Index (PMI) report for December.

US Dollar Price This week

The table below shows the percentage change of US Dollar (USD) against listed major currencies this week. US Dollar was the strongest against the Canadian Dollar.

USDEURGBPJPYCADAUDNZDCHF
USD0.37%-0.22%-0.23%0.58%-0.90%-0.30%0.47%
EUR-0.37%-0.58%-0.53%0.21%-1.26%-0.67%0.11%
GBP0.22%0.58%-0.06%0.81%-0.68%-0.08%0.70%
JPY0.23%0.53%0.06%0.80%-0.69%-0.09%0.75%
CAD-0.58%-0.21%-0.81%-0.80%-1.32%-0.88%-0.10%
AUD0.90%1.26%0.68%0.69%1.32%0.60%1.38%
NZD0.30%0.67%0.08%0.09%0.88%-0.60%0.78%
CHF-0.47%-0.11%-0.70%-0.75%0.10%-1.38%-0.78%

The heat map shows percentage changes of major currencies against each other. The base currency is picked from the left column, while the quote currency is picked from the top row. For example, if you pick the US Dollar from the left column and move along the horizontal line to the Japanese Yen, the percentage change displayed in the box will represent USD (base)/JPY (quote).

Following Monday's decline, the US Dollar (USD) Index regained its traction on Tuesday and closed the day in positive territory. In the meantime, Wall Street's main indexes built on weekly gains to end the day higher. Early Wednesday, the USD Index holds steady at around 98.50, while US stock index futures trade mixed.

The data from Germany showed on Tuesday that the annual inflation, as measured by the change in the Consumer Price Index (CPI), softened to 1.8% in December from 2.3% in November. Nevertheless, the Euro came under renewed bearish pressure in the American session and EUR/USD lost nearly 0.3% on the day. The pair fluctuates in a tight channel slightly below 1.1700 to begin the European session on Wednesday. The Harmonized Index of Consumer Price (HICP) in the Eurozone is forecast to rise 2% on a yearly basis in December.

Australian Bureau of Statistics reported early Wednesday that the CPI rose 3.4% on a yearly basis in November. This print followed the 3.8% increase reported in November and came in below the market expectation of 3.7%. AUD/USD continues to inch higher after closing the previous three trading days in positive territory and trades at its strongest level since October 2024 near 0.6750.

GBP/USD lost its traction after climbing to its highest level since mid-September near 1.3570 on Tuesday and closed the day in the red, pressured by the broad USD recovery. The pair stays in a consolidation phase near 1.3500 on Wednesday.

USD/JPY moves sideways at around 156.50 after posting marginal gains on Tuesday. In the early Asian session on Thursday, Labor Cash Earnings data from Japan will be watched closely by market participants.

Following Monday's rally, Gold preserved its bullish momentum and gained about 1% on Wednesday. XAU/USD corrects lower early Wednesday but manages to hold above $4,450.

Silver rose more than 10% in a two-day rally and came in within a touching distance of the record-high it set near $84 ahead of the New Year holiday. XAG/USD stays on the back foot in the European morning but trades above $80.

Employment FAQs

Labor market conditions are a key element to assess the health of an economy and thus a key driver for currency valuation. High employment, or low unemployment, has positive implications for consumer spending and thus economic growth, boosting the value of the local currency. Moreover, a very tight labor market – a situation in which there is a shortage of workers to fill open positions – can also have implications on inflation levels and thus monetary policy as low labor supply and high demand leads to higher wages.

The pace at which salaries are growing in an economy is key for policymakers. High wage growth means that households have more money to spend, usually leading to price increases in consumer goods. In contrast to more volatile sources of inflation such as energy prices, wage growth is seen as a key component of underlying and persisting inflation as salary increases are unlikely to be undone. Central banks around the world pay close attention to wage growth data when deciding on monetary policy.

The weight that each central bank assigns to labor market conditions depends on its objectives. Some central banks explicitly have mandates related to the labor market beyond controlling inflation levels. The US Federal Reserve (Fed), for example, has the dual mandate of promoting maximum employment and stable prices. Meanwhile, the European Central Bank’s (ECB) sole mandate is to keep inflation under control. Still, and despite whatever mandates they have, labor market conditions are an important factor for policymakers given its significance as a gauge of the health of the economy and their direct relationship to inflation.

Author

Eren Sengezer

As an economist at heart, Eren Sengezer specializes in the assessment of the short-term and long-term impacts of macroeconomic data, central bank policies and political developments on financial assets.

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