In a surprising turn of events, the EUR/USD currency pair experienced a significant surge on Friday, following the release of the latest U.S. Nonfarm Payrolls (NFP) report. The data revealed an unexpected drop in Average Hourly Earnings and a rise in the Unemployment Rate, leading to speculation that the Federal Reserve might consider rate cuts sooner than anticipated.
Despite the economy adding 275,000 jobs in February, surpassing the forecasted 200,000, the Bureau of Labor Statistics (BLS) report highlighted potential weaknesses in the labor market. Average Hourly Earnings increased by only 4.3% year-over-year and 0.1% month-over-month, both figures falling short of the expected 4.4% and 0.3%, respectively. Furthermore, the Unemployment Rate edged up to 3.9%, against predictions it would hold steady at 3.7%.
These indicators suggest diminished inflationary pressure from wages and a softening labor market, which could prompt the Federal Reserve to advance interest rate reductions earlier in the year. Lower interest rates typically have a negative impact on the Dollar as they tend to decrease foreign capital inflows.
On the European front, the Euro faced downward pressure after remarks from European Central Bank (ECB) officials. Francois Villeroy de Galhau, Governor of the Bank of France and member of the ECB Governing Council, stated that a rate cut in spring was “very likely,” specifying that “spring goes from April to June.” His colleague, Bundesbank President Joachim Nagel, echoed this sentiment, suggesting a rate cut could occur before summer, dependent on upcoming data.
These dovish comments contrast with ECB President Christine Lagarde’s more cautious approach, as she indicated June would be the next pivotal moment for reassessing interest rate policies. The diverging views within the ECB have contributed to the Euro’s decline, as lower interest rates diminish a currency’s appeal for foreign investment.
Despite these challenges, EUR/USD has maintained a short-term uptrend, buoyed by the notion that the U.S. Fed may be slightly ahead of the ECB in moving towards interest rate cuts.
Technical analysis of the EUR/USD pair shows a recovery following a pullback, with an ascent to the 1.0900s from February’s lows around 1.0600. The pattern of rising peaks and troughs indicates a tentative uptrend favoring bullish sentiment. However, signs of a potential correction are emerging, with the Relative Strength Indicator (RSI) giving a sell signal after exiting the oversold zone and completion of a three-wave ABC measured move pattern at recent highs.
Investors and analysts will continue to monitor these developments closely as central bank policies and economic indicators play a pivotal role in currency valuations.
(Source: OANDA)
