Euro Ticks Higher on Soft US Economic Data
The euro ticked higher on Thursday and pushed above 1.16 as soft US economic data weighed on the dollar. The market expects US Fed to axe rate as a results weak labor, and inflation data.
The American labour market is losing momentum, prompting traders to price in a high chance of another Federal Reserve rate cut in December.
Investors and markets anticipate that the September employment report though, which was due on October 7, could be released early next week. Recall that according to ADP private sector employment fell by 29k, the second consecutive monthly decline.
The Fed’s key tool for fighting inflation has traditionally been to increase benchmark interest rates in order to slow the economy down. But this fall it has done the opposite, cutting rates by 50 basis points.
In the FX market, traders are buying euro on the expectation that the US Federal Reserve will axe Fed rates in December, a forecast supported by weak macro data – CPI and labour conditions.
Though the Fed signalled a plan to slow down its rate cut next month, the employment level in America supports lowering of interest rates to drive economic growth.
Moody’s said in an update that the US Federal Reserve decision to cut its key policy rate in September and October 2025 will be followed by more cuts into 2026. Central banks are balancing weakening economic activity with lingering inflationary pressures, including those stemming from tariffs.
The euro rose above $1.16, near its strongest level since late October amidst the reopening of the US federal government, while investors awaited further guidance on ECB and Fed policy.
Yesterday, the euro mostly traded in about a third-of-a-cent range below $1.1600 following as 1.5 billion euros option expired at $1.1590.
European yields are mostly a little firmer. The 10-year Gilt is an exception, with a nearly three basis point increase to about 4.42%.
Meanwhile, US President Donald Trump signed a bill late Wednesday ending the 43-day government shutdown, allowing the release of a backlog of US economic data, although Washington cautioned that October employment and inflation figures may not be published.
On monetary policy, the European Central Bank (ECB) is widely expected to hold rates steady, with markets assigning just a 40% probability of a cut by September 2026.
Euro traders will watch for any hints from the Eurogroupmeeting about fiscal tightening and for speeches from ECB officials, though no major eurozone data releases are due.
ECB Vice President Luis de Guindos emphasized that current rates are appropriate, urging the central bank to remain “very prudent and cautious.” Senate Approves N1.15trn Loan to Fund 2025 Budget Deficit
