US Jobs Data Disappoints Forecasts
The number of continuing US joblessness claims has risen unexpectedly, with 25k new claims added instead of a -5k drop as predicted, taking the total claims to 2230k as of 26th December. Initial Jobless Claims fell compared to last year, but remained 2k higher than forecast, dropping from 287k to 277k.
FOMC Minutes Show US Policymakers’ Concern Over Inflation
Although the Federal Open Market Committee (FOMC) were unanimous in the vote to raise interest rates at the December meeting, the minutes show that confidence is not as high as the move might suggest. Several policymakers have expressed concern regarding the low rate of US inflation, claiming it could stay below the 2% target. Their attitude suggests that future interest rate hikes are far from assured and that the US economy will have to repeat the strong performance registered in the last few months of the year in order to raise confidence.
‘Buck’ (USD) Making Narrow Gains Despite ISM Non-Manufacturing Disappointment
The ISM Non-Manufacturing Composite has disappointed, with the index falling from 55.9 to 55.3 despite a 0.1 point rise having been forecast. The US Dollar is still advancing against the Euro, although gains have softened to just above opening levels following the news.
Eurozone Producer Price Index Adds to Inflationary Worries
Eurozone Product Prices fell -3.2% year-on-year (YoY) in November, suggesting that consumer prices are not on the rise. While only a mild indicator of inflationary pressures, the fact that prices continue to decline steadily will not be welcome news for the European Central Bank (ECB), especially after the shock of the recent sluggish inflation figures.
Eurozone PMIs have either exceeded or disappointed forecasts, highlighting the continued discrepancy in performance between different countries in the currency bloc. Meanwhile, the US Dollar is bullish against the major currencies ahead of the release of minutes from the Federal Open Market Committee’s (FOMC) policy meeting in December.
EUR/USD Fall as Unbalanced PMIs Highlight Eurozone Economy Split
A raft of Markit PMIs for the Eurozone and countries in the currency bloc have highlighted a difference in the economic performance of Germany as compared to other Euro-area countries. Germany’s Composite index rose from 54.9 to 55.5, while the Services index climbed to 56.0, despite forecasts that both figures would remain level. In comparison, the Composite and Services PMIs for France dropped, with the forecast Services reading of 49.8 predicting that the sector had contracted slightly in December. The Italian Services PMI slipped from 53.4 to 53.3, although the Composite did rise to 56.0.
Overall the Eurozone Composite is forecast to have increased unexpectedly from 54 to 54.3, however the drop in growth, particularly in France, highlights the fact that a strong German economy is the primary driver behind Eurozone expansion. As Chris Williamson, Chief Economist at Markit, explains, ‘dig deeper into the numbers and the concern is mainly focused on France. Germany, Italy, Spain and Ireland are all enjoying strong expansions, but France is showing signs of stalling once again. A rebound in France is needed to help drive a strong year of growth for the region as a whole.’
The EUR/USD exchange rate is currently trending in the region of -0.2%, although the Euro is making bullish gains against the weaker commodity-correlated currencies.
Strong USD/EUR Exchange Rate Today as Traders Anticipate FOMC December Meeting Minutes
During the December 15th-16th meeting, the Federal Open Market Committee made the historic decision to raise interest rates for the first time in a decade, signalling that the US economy was making sufficient progress to weather a stronger ‘Buck’ (USD). US policymakers have since suggested that four more interest rate hikes will be on the cards for 2016, with the price of Fed funds futures putting an 8% probability that the first rise will happen in January and a 54% likelihood it will happen in March. There is already a 10% likelihood that interest rates will be above 1% by the end of July.
Traders are now eagerly awaiting the minutes of the FOMC’s December meeting, which could provide a stronger indication of the rate and frequency of future interest rate hikes. They will reveal how much influence the Fed hawks currently have over more dovish members of the committee and could highlight key economic or political events that the Fed intends to use to gauge when the economy is ready for another hike.
The USD/EUR exchange rate is currently trading between 0.9280 and 0.9326.
Euro to US Dollar Forecast: US Data Glut Forecast to Push ‘Greenback’ Higher
The FOMC minutes are the final data release of the session and are preceded by a glut of US data. With only low-importance data for the Eurozone due out, US employment figures, Durable Goods Orders and Crude Oil Inventories will have little resistance should they print positively, although following Monday’s shock acceleration in the US manufacturing sector contraction, there is a chance that today’s ISM Non-Manufacturing Composite could also fall.
The EUR/USD exchange rate is currently trending between 1.0717 and 1.0773.