The EUR/USD pair has paused its four-day winning streak, trading around 1.0870 during the Asian session on Friday. This pullback is primarily attributed to a strengthening US Dollar (USD), driven by ongoing market caution in anticipation of the upcoming US presidential election.
On Thursday, the USD faced challenges as the Personal Consumption Expenditures (PCE) Price Index data revealed that core inflation rose by 2.7% year-over-year in September. The monthly core PCE Price Index increased by 0.3%, aligning with market consensus. However, Initial Jobless Claims fell to a five-month low of 216,000 for the week ending October 25, indicating a robust labor market and reducing the likelihood of imminent rate cuts by the Federal Reserve (Fed).
Traders are closely monitoring the Nonfarm Payrolls (NFP) report set to be released later today. Expectations are that the US economy added approximately 113,000 jobs in October, with the unemployment rate expected to hold steady at 4.1%. The outcome of this report may significantly influence market sentiment regarding the Fed’s monetary policy in the near term.
In the Eurozone, the annual inflation rate unexpectedly increased to 2.0% in October, up from the prior reading of 1.7% and surpassing forecasts of 1.9%. The core inflation rate remained steady at 2.7% year-over-year. This uptick in inflation is underpinned by stronger-than-expected economic growth, with the Eurozone economy expanding by 0.4% quarter-on-quarter in Q3—double the growth observed in Q2 and exceeding predictions of 0.2%.
The unexpected rise in inflation data has heightened expectations that the European Central Bank (ECB) will maintain a cautious stance on rate cuts, avoiding any substantial reductions. The ECB has noted that inflationary pressures remain elevated, largely driven by wage growth. In its recent October meeting, the ECB reiterated its commitment to a “data-dependent and meeting-by-meeting” approach for future policy decisions, leaving investors vigilant for signs of how these dynamics may play out in forthcoming monetary policy.
As the market digests these mixed signals, traders will be attentive to any developments that could influence the EUR/USD pair’s trajectory in the near term.
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