Improved Initial Jobless Claims Drive Euro US Dollar (EUR/USD) Exchange Rate Decline
An unexpected improvement in the latest US initial jobless claims figure saw the Euro to US Dollar (EUR/USD) exchange rate come under renewed pressure.
As jobless claims saw a smaller increase on the week than anticipated, clocking in at 781,000 rather than 800,000, this encouraged hopes of a stabilisation within the US labour market.
Support for the US Dollar (USD) naturally picked up in response to the data, lifting the safe-haven currency out of its extended slump and away from recent multi-month lows.
While the figure still shows a solid increase in jobless claims on the week it suggests that the labour market decline may have started to bottom out at the start of 2021.
On the other hand, the Euro (EUR) largely fell out of favour with investors thanks to the Eurozone inflation rate’s failure to pick up on the year, remaining stuck at -0.3%.
Underwhelming Non-Farm Payrolls May Prompt USD Exchange Rate Losses
However, the US Dollar could come under renewed pressure ahead of the weekend in December’s non-farm payrolls report proves underwhelming.
After the run of poor labour market figures seen over the course of the month, and the weak ADP employment change reading, investors expect to see another softer jobs report.
If the headline non-farm payrolls report shows a smaller increase in employment on the month the EUR/USD exchange rate may find a rallying point.
Even if the US labour market has started to recover some of its lost ground in January any significant December downturn would still bode ill for the economic outlook.
With higher levels of unemployment likely to weigh on economic growth in the fourth quarter the mood towards the US Dollar could easily sour on Friday.
Unless the payrolls report can better expectations USD exchange rates look set to give up some of their current gains, left exposed to renewed anxiety over the domestic outlook.
Deteriorating German Trade Data Forecast to Weigh on Euro
On the other hand, the appeal of the Euro may remain limited if November’s set of German trade data shows a deterioration.
Forecasts suggest a narrowing of the headline trade surplus, indicating that conditions weakened in the fourth quarter.
As strong trade levels have previously helped to shield the German economy from the impact of a domestic slowdown any weakness here could weigh heavily on EUR exchange rates.
Support for the single currency may also diminish in response to a softer month of German industrial production.
With November’s production expected to show a slower degree of growth on the month confidence in the outlook of the Eurozone’s powerhouse economy could well fade further before the end of the week.