EUR/USD Slides as US Non-farm Payrolls Report Beats Forecasts

December 8, 2017 - Written by Toni Johnson

STORY LINK EUR/USD Slides as US Non-farm Payrolls Report Beats Forecasts

The Euro to US Dollar exchange rate is weakening today after strong US labour market data improved the outlook for the US economy.

The EUR/USD pairing has weakened -0.2% to 1.1752, with poor German trade data further inspiring losses for the common currency.

EUR Weakens as Declining German Exports Causes Trade and Current Account Surpluses to Fall

The latest German trade figures have disappointed forecasts, creating jitters over the outlook for the Eurozone’s powerhouse economy.

The German trade balance weakened from €24.1 billion to €18.9 billion in October, scuppering predictions of a slip to €21.9 billion.

This was thanks to a continued decline of exports, which fell -0.4% again on a seasonally-adjusted basis, against forecasts for 1% growth.

Imports surged, meanwhile, notching up growth of 1.8% against the 1% forecast after a -1.1% decline.

The poor trade performance also weighed on the current account balance, with the surplus dropping from €25.4 billion to €18.1 billion – nearly -€2 billion lower than economists had been anticipating.

USD Gets a Boost from Strong US Labour Market Data

A strong set of labour market figures from the United States has this afternoon boosted the US Dollar versus the Euro.

The vital non-farm payrolls report – one of the most influential releases upon Federal Reserve monetary policy decisions – showed above-forecast job creation of 228,000 in November.

Economists had expected payrolls growth to slow from October’s 247,000 increase to 195,000.

The US Labor Department commented;

‘The change in total non-farm payroll employment for September was revised up from +18,000 to +38,000, and the change for October was revised down from +261,000 to +244,000.’

‘With these revisions, employment gains in September and October combined were 3,000 more than previously reported. After revisions, job gains have averaged 170,000 over the last 3 months.’

The stronger-than-expected figure was not enough to shift the unemployment rate lower, with joblessness instead remaining at 4.1%.

Wage growth data disappointed, however, with average hourly earnings growth clocking in at 2.5% instead of the forecast 2.7% year-on-year, with month-on-month hourly pay increasing 0.2% instead of 0.3%.

Will EUR Fall Further against USD as Market Hopes for US Tax Reform Progress Grow?

There is no Eurozone data left for release today, but the University of Michigan sentiment index for December is set for release soon.

This could provide a further boost for USD, as forecasts are for a minor uptick in confidence from 98.5 to 99.

Odds of a 0.25% interest rate hike from the Federal Reserve next week currently stand over 90%, so a positive result from the Michigan index is unlikely to change that much.

The US Dollar could also make gains over the weekend, to the detriment of the Euro, if markets believe President Donald Trump is closing in on his goal of reforming the US tax system.

The House of Representatives and the Senate have both passed separate bills on tax reform, with greatly different plans and timelines.

These bills need to be reconciled into a single piece of legislation before Trump can act, so signs that lawmakers are progressing towards a single bill will provide further upside pressure to USD.

On a technical basis, United Overseas Bank believes the EUR/USD outlook is neutral, with pressure shifting towards depreciation, but with no reason to expect significant losses yet;

‘EUR is approaching the bottom of the expected 1.1740/1.1940 consolidation range and the weak daily closings over the past few days have shifted the pressure to the downside. That said, it is too early to expect a sustained down-move. From here, a move below 1.1740 would not be surprising but the next support at 1.1710 is unlikely to yield so easily. Overall, EUR is expected to stay under pressure for now unless it can move and stay above 1.1855. On a shorter-term note, 1.1815 is already a strong level.’

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TAGS: Euro Forecasts