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EUR/USD falls toward 1.0500 as the US labor market tightens and investors scrutinize Eurozone inflation
EUR/USD is anticipated to weaken further to roughly 1.0500 in the wake of positive US ADP Employment data. In the United States, the promise of better earnings will counteract the massive increase in new payroll positions. Inflation is anticipated to decline across the Eurozone as a result of dropping energy prices.
In the early Tokyo session, the EUR/USD pair is lingering near the key support level of 1.0520. The major currency pair is anticipated to prolong its decline to near the psychological support of 1.0500, as the United States' tight labor market has prompted the danger of the Federal Reserve (Fed) maintaining rising interest rates beyond CY2023.
Investors exerted strong selling pressure on risk-perceived assets such as the S&P 500 as the better-than-anticipated addition of new payrolls to the U.S. labor market for the month of December could accelerate wage inflation in the future. Risk aversion was supported by investors, resulting in a surge in the US Dollar Index (DXY). The USD Index increased to about 105.00 due to a rise in safe-haven demand. A drop in investors' risk appetite reduced the demand for United States government bonds.
The Automatic Data Processing (ADP) agency of the United States announced a significant increase in the number of employment additions for the month of December, from 150K to 235K, compared to the previous release of 127K. It is abundantly clear that increased standards for skill will be met by paying higher compensation, so stimulating wage growth and leaving individuals with more disposable income. The statement could bring about a price index recovery through a surge in retail demand.
In the future, the United States Nonfarm Payrolls (NFP) statistics release will shed further light on the employment situation. The Unemployment Rate is projected to remain at 3.7%. In addition, the publication of the Average Hourly Earnings statistics will be of the utmost importance.
Friday will see the release of the Harmonized Index of Consumer Prices (HICP) statistics for the Eurozone, which investors will closely monitor. In light of the decline in energy costs and German inflation, it is quite probable that inflationary pressures in the Eurozone economy would follow a similar trajectory.
As reported by Reuters, European Central Bank (ECB) policymaker Francois Villeroy de Galhau stated in a New Year's address: "It would be preferable to attain the appropriate 'terminal rate' by next summer, but it is too early to determine at what level."
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