Reflecting the movements in bond yields, there were a lot of gyrations in EUR/USD on Friday firstly on the back of the US payrolls report and then in response to the remarks of Fed speakers, Rabobank’s Senior FX Strategist Jane Foley notes.
Scope for dips back to 1.10 in the weeks ahead
“In the end, EUR/USD ended the session very close to where it had been positioned 24 hrs before. As the market turns its attention to this week’s events, which include the key US CPI inflation release, EUR/USD is trading a little lower. The market had hoped that last week’s US jobs report would provide clarity over whether the Fed would opt for a 50-bps rate cut later this month, rather than 25 bps. While that debate continues to rage, market pricing is still veering away from pricing in the bigger move, which is allowing the USD a little support.”
“It is widely accepted that sticky services sector inflation will temper the pace of ECB rate cuts. That said, given the backdrop of moderating inflation pressures in Europe and the need for growth in Germany, a stronger EUR could in theory hasten the pace of ECB rate cuts. In turn this should cap upside potential for EUR/USD. Consequently, we do not see EUR/USD trading much higher than 1.12 in the coming months. We continue to see scope for dips back to 1.10 in the weeks ahead.”
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