Euro down ahead of NFP

The Euro is coming under further pressure against the US dollar as we get ready to enter the European trading session. Investors brace themselves for the release of key economic data due out later today which includes crucial employment figures from the US that could decide the fate of the US Federal reserve’s current rate hiking cycle. 

The US dollar has enjoyed a solid rally over the last week as expectations for an interest rate reduction from the Federal Reserve (Fed) in March have dropped. Market participants are reconsidering expectations of rate cuts considering strong economic prospects of the US economy. 

The data market participants are waiting for begins with the preliminary Harmonized Index of Consumer Prices (HICP) data for December, which will be published at 10:00 GMT. The inflation data is poised to remain at a higher level which will allow European Central Bank (ECB) policymakers to favour higher interest rates for a longer period. 

Heading into the key data risks, the shared currency is supported by an unexpected upward revision of the Eurozone PMIs on Thursday, which forced investors to pare their bets for more aggressive rate cuts by the ECB. In fact, money markets are pricing 156 basis points (bps) of easing from the ECB this year, about 10 bps less than on Wednesday.  

The highlight of the trading day will be the release of the Nonfarm Payrolls (NFP) later during the early North American session. The US labour market report is expected to show that the economy created 170,000 jobs in the last month of 2023, down from a job addition of 199,000 in November. The Unemployment Rate is seen ticking up to 3.8%. 

The crucial data will play a key role in influencing market expectations about the next policy moves by the European Central Bank (ECB) and the Federal Reserve (Fed), which, in turn, should determine the near-term trajectory for the EUR/USD pair.