- EUR/USD prints a fresh four-day high at 1.0740 due to a sharp decline in the US Dollar. The strength in the major currency pair could fizzle out amid uncertainty ahead of the US NFP and firm speculation that the European Central Bank (ECB) will start reducing interest rates in June.
- The US NFP data will significantly influence market expectations for the Fed’s interest-rate outlook. The consensus shows that fresh payrolls were at 243K, lower than the former reading of 303K. The Unemployment Rate is expected to steady at 3.8%.
- Investors will also focus on the Average Hourly Earnings data, which will provide fresh clues about the inflation outlook. Monthly wage growth is forecasted to have grown steadily by 0.3%. In the same period, annual wage growth is estimated to have dipped to 4.0% from 4.1%.
- Generally, higher wage growth and strong labor demand result in robust consumer spending momentum, which eventually boosts inflationary pressures. This situation would be favorable for the US Dollar and bond yields and would likely weigh on the EUR/USD pair, as it would allow the Fed to maintain a restrictive interest rate framework for a longer period.
- Investors will also focus on the US ISM Services PMI data, a survey that gauges the performance in the services sector, which accounts for two-thirds of the economy. The Services PMI is seen improving to 52.0 from the prior reading of 51.4. Investors will also focus on subcomponents like the New Orders Index and Prices Paid Index, which will reflect the status of new business and service price inflation, respectively.
- On the Eurozone front, the European Central Bank is widely expected to reduce interest rates in June provided there isn’t any surprise with inflation as price growth in the Eurozone is on course to return to the desired rate of 2%. The expectations for the ECB achieving a “soft landing” have improved as the old continent’s economy expanded by 0.3% in the first quarter of this year, outperforming the consensus of 0.1%.
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