EUR/USD struggles to reach yearly high ahead of NFP report

EUR/USD is struggling to test the yearly high (1.1033) as it fails to continue the series of higher highs and lows from the beginning of the week, and the U.S. labour market data (NFP) report may weigh on the exchange rate as employment is expected to rise further.

The short-term recovery of EUR/USD seems to have stalled as it consolidates below the weekly high (1.0973), and developments in the US could affect the exchange rate as the Federal Reserve officials continue to take a restrictive stance.

In a speech at New York University, Cleveland Fed President Loretta Mester acknowledged that ‘wages are still growing at an annual rate of about 4-1/2 to 5 percent,’ and the official went on to say that ‘inflation remains too high and too persistent,’ as price growth remains well above the central bank’s 2 percent target.

The comments suggest that the Federal Open Market Committee (FOMC) may pursue tighter policy, as Mester reiterated that ‘additional policy tightening may be appropriate,’ and the update to the NFP report may prompt the Fed to implement higher interest rates as the economy is expected to add 240,000 jobs in March.

However, a weaker-than-expected NFP report could boost EUR/USD by fueling speculation about a change in monetary policy, and it remains to be seen whether the FOMC will further alter forward guidance at its next interest rate decision on May 3 amid signs of a weakening economy.

Against this backdrop, the update to the NFP report could impact the near-term outlook for EUR/USD as the Fed appears to be nearing the end of its rate hike cycle. However, the failed attempt to test the yearly high (1.1033) could lead to a short-term setback in the exchange rate if it fails to hold above the monthly low (1.0788).