EUR/USD Sees Slight Rise to 1.0770 Before Eurozone GDP, US Jobless Data

During the early trading hours in Asia on Thursday, the EUR/USD currency pair recorded modest gains. The pair hovered around 1.0770, marking a slight increase of 0.08% for the day. Despite these gains, potential growth in the pair may be limited due to a resurgence in demand for the US Dollar (USD) and disappointing economic data from the Eurozone.

The US Dollar Index (DXY), which tracks the USD against a basket of other major currencies, has been on an upward trajectory for three consecutive days. This rise comes in spite of less than stellar ADP employment data released on Wednesday. The ADP report showed private payrolls increased by 103,000 in November, a decrease from the 106,000 recorded in October and below market expectations. This week, market participants are particularly focused on additional US employment data, including the weekly Jobless Claims and the Nonfarm Payroll report, for further insights into the health of the American economy.

The Eurozone’s economic outlook appears less optimistic. The latest retail sales data revealed a mere 0.1% month-on-month increase in October, falling short of the anticipated 0.2% rise and marking a significant downturn from September’s -0.1%. Year-on-year, retail sales in the Eurozone dropped from a 2.9% increase to a 1.2% decline in October, a steeper fall than the expected 1.1%. These figures reflect the challenges faced by the Eurozone economy, including high interest rates, weakened consumer confidence, and diminishing optimism in the labor market, all of which are contributing to a slowdown in private consumption growth.

Isabel Schnabel, a member of the European Central Bank (ECB) Board, previously emphasized the necessity of rate hikes as the battle against inflation enters its most challenging phase. However, her stance has shifted following three consecutive months of unexpectedly low inflation rates. Market expectations are now leaning towards an aggressive rate cut by the ECB, with forecasts predicting a reduction of 142 basis points (bps) in the next year. The first rate cut is anticipated as early as March 2024.

Investors are now keenly awaiting the release of the Eurozone’s Gross Domestic Product (GDP) figures for the third quarter (Q3), which are expected to show a consistent contraction of 0.1% quarter-on-quarter. Additionally, the upcoming US Jobless Claims data is also on the radar, potentially impacting the EUR/USD pair’s movements in the short term.