EUR/USD Falls as U.S. NFP Dispels Growth Fears

EUR/USD Falls as U.S. NFP Dispels Growth Fears

Total U.S. nonfarm payroll employment rose by 257,000 in January beating expectations of a 228,000 rise. The focus of market participants was on hourly wages which had decreased in December, and were expected higher in this report. The average hourly gains also beat expectations at 0.5%.

The USD is gaining across the board boosted by the sentiment that the U.S. Federal reserve will hike rates sooner rather than later. Softer data in the past month starting with the –0.3% average hourly number reported last month and followed up by weak GDP expectations, retail sales, trade balance, etc. started to weigh on the USD and pushed back the expected date for an interest rate hike in the U.S.
EUR/USD

Comments from Fed member Plosser about monetary policy being data dependant will be top of mind as the employment data was positive in all components even hinting at higher inflation which continues to be a question mark concerning the start of a tightening cycle.

Interest rate divergence makes the US dollar more attractive as other major central banks are pushing easing policies intended to boost growth in the struggling economies of Europe, China and Japan to name the biggest ones. A rate hike by the Fed will boost the U.S. dollar, which could cause a slowdown as imports rise and exports decrease as seen in the latest trade balance figures which showed a larger deficit that will grow.

The EUR/USD moved 100 pips in the aftermath of the NFP report release. Fundamental factors drove the direction of the move as the EUR depreciated, but the size of the move was pared back as SNB intervention and the Greek debt negotiations loom over the price of the single currency.