Friday's US NFP print bears down on a Euro turned back from a one-month high

EUR/USD is just above 1.1200 after reaching its highest since early October.
ECB President Lagarde says the data from here to December decide a hike.
US payrolls are due Friday, then eurozone third-quarter GDP on November 13.

Eurozone producer prices rose 11.1% from a year earlier in September, and European Central Bank (ECB) President Lagarde said the data between now and December will decide a hike. The Euro has fallen anyway, against a Dollar that has recovered part of Wednesday's drop. EUR/USD reached just short of 1.1300 on Wednesday, its highest since early October, and is trading just above 1.1200.

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Eurozone inflation reached 4% in October, a three-year high, which ECB President Lagarde said in Milan is mostly energy. She said the rate tool shouldn't be swung like a hammer, but that the ECB still has to use it to keep expectations from running away. Bundesbank President Nagel and Bank of Italy Governor Panetta have both said a December hike may be needed, which would lift the deposit rate from 2.5%.

The Dollar's one-month low on Wednesday followed Democrats taking the House and the Senate, when the Euro hit a high. Jobless claims then came in at 189K on Thursday, 7K under the forecast, but unit labour costs fell 0.7% over the third quarter against a forecast rise of 0.6%. After Thursday's figures, the market has December's Fed hike near 70%, from above 80% on Wednesday, and the deposit rate stays a point and a quarter under the Fed's range.

On the calendar

ECB Chief Economist Lane is due to speak at 09:30 GMT on Friday, and September retail sales follow at 10:00 GMT, forecast down 0.1% on the month after 0.1% growth. The Sentix survey is due at 09:30 GMT on Monday, after 2.7. Third-quarter Gross Domestic Product (GDP), second estimate, comes at 10:00 GMT on Friday, November 13, after 0.4% growth, and the three feed the ECB's December meeting.

October Nonfarm Payrolls (NFP) come on Friday at 13:30 GMT, with the forecast at 65K after 29K. The October Consumer Price Index (CPI) comes on Tuesday, November 10, with the forecast 0.3% after 0.6%. Both feed the Fed's December 8-9 meeting, the other side of the gap.

On the charts

The retreat has taken back about a third of the rise from the October 29 low just above 1.1100. The pair is still below the 50-day Exponential Moving Average (EMA), just above 1.1300, and has been below the 200-day EMA, just above 1.1450, since mid-September. Daily momentum has turned down from overbought.

EUR/USD daily chart

Euro FAQs

What is the Euro?

The Euro is the currency for the 20 European Union countries that belong to the Eurozone. It is the second most heavily traded currency in the world behind the US Dollar. In 2022, it accounted for 31% of all foreign exchange transactions, with an average daily turnover of over $2.2 trillion a day. EUR/USD is the most heavily traded currency pair in the world, accounting for an estimated 30% off all transactions, followed by EUR/JPY (4%), EUR/GBP (3%) and EUR/AUD (2%).

What is the ECB and how does it impact the Euro?

The European Central Bank (ECB) in Frankfurt, Germany, is the reserve bank for the Eurozone. The ECB sets interest rates and manages monetary policy. The ECB’s primary mandate is to maintain price stability, which means either controlling inflation or stimulating growth. Its primary tool is the raising or lowering of interest rates. Relatively high interest rates – or the expectation of higher rates – will usually benefit the Euro and vice versa. The ECB Governing Council makes monetary policy decisions at meetings held eight times a year. Decisions are made by heads of the Eurozone national banks and six permanent members, including the President of the ECB, Christine Lagarde.

How does inflation data impact the value of the Euro?

Eurozone inflation data, measured by the Harmonized Index of Consumer Prices (HICP), is an important econometric for the Euro. If inflation rises more than expected, especially if above the ECB’s 2% target, it obliges the ECB to raise interest rates to bring it back under control. Relatively high interest rates compared to its counterparts will usually benefit the Euro, as it makes the region more attractive as a place for global investors to park their money.

How does economic data influence the value of the Euro?

Data releases gauge the health of the economy and can impact on the Euro. Indicators such as GDP, Manufacturing and Services PMIs, employment, and consumer sentiment surveys can all influence the direction of the single currency. A strong economy is good for the Euro. Not only does it attract more foreign investment but it may encourage the ECB to put up interest rates, which will directly strengthen the Euro. Otherwise, if economic data is weak, the Euro is likely to fall. Economic data for the four largest economies in the euro area (Germany, France, Italy and Spain) are especially significant, as they account for 75% of the Eurozone’s economy.

How does the Trade Balance impact the Euro?

Another significant data release for the Euro is the Trade Balance. This indicator measures the difference between what a country earns from its exports and what it spends on imports over a given period. If a country produces highly sought after exports then its currency will gain in value purely from the extra demand created from foreign buyers seeking to purchase these goods. Therefore, a positive net Trade Balance strengthens a currency and vice versa for a negative balance.