Update: US Employment Data Betters Forecast to Keep Euro US Dollar Exchange Rate Under Pressure
The 235,000 increase in private sector jobs boosted hopes that Friday’s non-farm payrolls figure will prove similarly strong, pointing towards a continued tightening of the US labour market.
Even so, the US Dollar (USD) struggled to significantly capitalise on this bullish data thanks to lingering concerns over the ultimate impact of the Trump administration’s increasingly protectionist agenda.
Trade War Fears Offer Support to Euro US Dollar (EUR/USD) Exchange Rate
Escalating fears over the prospect of a US-instigated trade war have helped the Euro to US Dollar (EUR/USD) exchange rate to push higher this week.
While the threat of significant tariffs on steel and aluminium imports encouraged a general increase in market risk appetite this did not particularly benefit the US Dollar (USD).
The resignation of key White House economic adviser Gary Cohn raised fears that the US is likely to continue its shift towards more protectionist policies in the months ahead.
This has the potential to dent the growth of the US economy, particularly if other nations respond in kind, which has somewhat limited the appeal of the US Dollar at this juncture.
A further escalation in trade tensions may also be enough to limit the hawkishness of the Federal Reserve, diminishing the prospect of policymakers achieving four interest rate hikes before the end of the year.
Euro Exchange Rates Vulnerable as ECB Forecast to Maintain Dovish Outlook
Even so, the EUR/USD exchange rate struggled to maintain its upward momentum as anticipation builds for the European Central Bank’s (ECB) March policy decision.
Confirmation that the fourth quarter Eurozone gross domestic product lost some momentum, dipping from 0.7% to 0.6% on the quarter, did little to boost demand for the single currency.
Signs largely appear to point towards the ECB maintaining a rather dovish stance on monetary policy at this stage, with no real adjustment in the central bank’s commentary looking likely.
Unless policymakers appear to be shifting towards a more optimistic outlook EUR exchange rates may struggle to find any particular support on Thursday.
US Dollar (USD) Boost Likely if Unemployment Rate Declines as Forecast
Friday’s US labour market data could put further pressure on the EUR/USD exchange rate, with forecasts pointing towards another dip in the unemployment rate.
Evidence of further tightening within the labour market would support the case for the Fed to raise interest rates again imminently, even if there are signs that a decent degree of slack remains.
However, the US Dollar may struggle to capitalise on any improvement if it is not matched by another solid average hourly earnings figure.
With wage growth still failing to strengthen as much as Fed policymakers would like, this leaves USD exchange rates vulnerable to investor disappointment if earnings fail to improve sufficiently.
Developments surrounding the Trump administration and its push for protectionist policies could also keep the US Dollar on a weaker footing, even if this latest raft of data proves bullish.
Euro US Dollar Exchange Rate Looks For Rallying Point on German Trade Figures
Another potential rallying point may be in store for the EUR/USD exchange rate ahead of the weekend, providing that the latest German trade data beats forecasts.
Any widening of the German trade surplus would give the Euro cause for confidence, in spite of the growing sense of market unease over a possible trade war.
As forecasts point towards a contraction in imports on the month this could encourage bets that the Eurozone’s powerhouse economy remains resilient, reducing fears over the potential impact of a deterioration in global trading conditions.
On the other hand, a downside surprise here could well see the EUR/USD exchange rate ceding further ground.