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Could Strong US Payrolls Extend Euro US Dollar Exchange Rate Losses?

In spite of February’s German trade surplus widening further than forecast the appeal of the Euro remained muted on Friday morning.

While the Eurozone’s powerhouse economy continued to demonstrate its robust health this did little to encourage investors at this juncture.

Recent dovish commentary from European Central Bank (ECB) President Mario Draghi has continued to limit the appeal of the single currency.

With policymakers expected to maintain a generally neutral-to-dovish bias for the foreseeable future markets anticipate a greater policy divergence between the ECB and the Federal Reserve.

As hopes of the ECB beginning to taper its quantitative easing program any time soon fade the Euro US Dollar exchange has remained on a weaker footing.

However, with tensions over the much-delayed disbursement of the next tranche of bailout funds diffusing the Euro could see greater upside potential.

If the ZEW economic sentiment surveys for Germany and the wider Eurozone show a general increase in confidence then the single currency could see a fresh boost next week.

Volatility could also be in store for the EUR USD exchange rate upon the release of the latest raft of Eurozone inflation rate data, which is likely to underline the more dovish tone of the ECB.

Confidence in the US Dollar improved ahead of March’s US non-farm payrolls report, meanwhile, particularly in the wake of Wednesday’s hawkish Fed minutes.

Investors remain optimistic that the report will offer further evidence of a robust labour market, even if it is weaker than February’s reading of 235,000.

A solid showing here could boost the odds of the Fed tightening monetary policy at a more aggressive pace, to the benefit of the ‘Greenback’.

As Stefan Koopman, market economist at Rabobank, noted:

‘Even though the jobs data will always be the most important part of this report, the market will surely pay just as much attention to developments in the unemployment rate (4.7% expected), in the participation rate (63.0% prior) and in wages (2.7% y/y expected). With so many data points to pick, I’m sure there will be something in store for both bulls and bears.’

Even if the headline figure falls short of forecast the EUR USD exchange rate could remain on the back foot, though, as risk aversion continues to boost the US Dollar.

Weaker wage growth could cause some weakness for the ‘Greenback’, on the other hand, as this could put a dampener on the mood of policymakers.

Worries surrounding the capabilities of the Trump administration could limit the appeal of the US Dollar in the near term, if promised fiscal stimulus looks unlikely to be delivered.

Current EUR USD Interbank Exchange Rates

At the time of writing, the Euro US Dollar exchange rate was trending narrowly at 1.06. Meanwhile, the US Dollar Euro exchange rate was making modest gains in the region of 0.94.