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Surge in US Employment Reverses Euro US Dollar Exchange Rate Gains

Demand for the Euro strengthened sharply on the back of the European Central Bank’s (ECB) June meeting minutes, setting it on an uptrend ahead of the weekend.

The revelation that policymakers had discussed dropping the promise to step up asset purchases if necessary excited markets, despite a minimal shift in the overall tone of the minutes.

Even though the ECB did not change its pledge at this juncture that was not enough to stop the single currency rallying strongly across the board.

Better-than-expected German industrial production data also helped to shore up the Euro, pointing towards the continued health of the Eurozone’s powerhouse economy.

With positive Eurozone data likely to encourage greater optimism amongst ECB policymakers, even if the uptick in domestic inflation remains unconvincing, the Euro US Dollar exchange rate could remain biased to the upside in the near term.

If May’s German trade balance shows a widening of the surplus this could improve the appeal of the single currency further, particularly if export growth proves encouraging.

On the other hand, the mood towards EUR exchange rates may sour in the coming days as Greece’s next repayment deadline draws closer.

With the disbursement of the latest tranche of bailout funds delayed until mere days before the deadline the threat of a potential default looks set to hang over the Euro.

Fed Rate Hike Speculation to Support US Dollar Demand

The US Dollar surged higher against many of the majors this afternoon, however, in response to a significant uptick in the non-farm payrolls headline figure.

As 222,000 employees joined the labour force in June this encouraged greater confidence in the health of the underlying economy, boosting bets that the Federal Reserve will raise interest rates again before the end of the year.

Even so, the details of the labour market report were not universally positive, with average weekly earnings failing to pick up yet again.

However, as James Knightley, Chief Economist at ING, noted:

‘The Fed has repeatedly used the term “transitory” to describe the slowdown in activity and subdued inflation backdrop and believe that it is only a matter of time before the tightness in the labour market translates into rising wage pressures.’

Further volatility is likely for the EUR USD exchange rate next week as various members of the Federal Open Market Committee (FOMC) are due to speak.

Any indications of hawkishness could boost the appeal of the US Dollar, even though markets are already pricing in a high likelihood of an imminent Fed rate hike.

Current EUR USD Interbank Exchange Rates

At the time of writing, the Euro US Dollar exchange rate was slumped in the region of 1.1395. Meanwhile, the US Dollar Euro exchange rate was making strong gains around 0.8774.