Article rewritten based on the original by Felipe Erazo via FXStreet:
https://www.fxstreet.com/news/eur-usd-climbs-toward-six-week-highs-as-weak-us-data-pressures-the-dollar-202512031537
Title: EUR/USD Surges Toward Six-Week High as Weak US Economic Data Undermines Dollar Strength
Author: Based on the original article by Felipe Erazo, FXStreet
The EUR/USD currency pair has advanced steadily, inching closer to its highest level in six weeks, fueled by growing bearish sentiment toward the US Dollar due to fresh economic data releases pointing to a weakening US economy. The Euro, supported by broad market trends and relative economic stability in the Eurozone, benefited from the inverse impact of disappointing US indicators.
As investors recalibrated their expectations for US interest rates and future Federal Reserve actions, the US Dollar Index (DXY) dropped, providing additional lift to the euro. In particular, the latest US macroeconomic readings suggest that the Federal Reserve may have limited room to maintain higher rates persistently, which softens the appeal of the greenback relative to the euro.
Key Themes Supporting EUR/USD Momentum:
Several economic and technical factors have driven the EUR/USD’s upward movement. The pair currently trades around the 1.0850 mark, showing considerable strength as it attempts to break above resistance levels last seen six weeks ago.
Below are the main drivers of the currency pair’s strength:
1. Weak US Economic Data:
– The November Institute for Supply Management (ISM) Manufacturing PMI came in lower than expected, triggering concerns over the health of the American manufacturing sector.
– The ISM Manufacturing PMI contracted further to 46.7, compared to the market’s forecast of a modest improvement to 47.6. A reading below 50 indicates contraction, revealing that the sector continues to struggle with output, orders, and employment.
– New Orders, a component of the ISM report, fell sharply to 48.3 from 49.1, and Employment fell to 45.8 from 46.8, signaling decline in factory hiring and demand.
– The Prices Paid Index declined to 49.9, supporting disinflationary trends that reduce the incentive for the Fed to hold or raise interest rates further.
– Additionally, the US Job Openings and Labor Turnover Survey (JOLTS) report showed a considerable decline in job openings to 8.73 million in October from a downwardly revised 9.35 million in September. The drop suggests loosening labor market conditions — a signal that labor demand is cooling down.
2. Market Repricing of Fed Rate Expectations:
– Treasury yields decreased across the curve, with 10-year US bond yields falling by more than 10 basis points as initial market reactions to the soft data filtered through.
– Traders and investors rapidly adjusted their expectations regarding the Federal Reserve’s monetary stance. Fed Funds Futures contracts now price in at least three rate cuts for 2024, with the first cut potentially arriving as early as May.
– The CME FedWatch Tool reflects a 50 percent probability that the first interest rate cut may occur at the March policy meeting, up from under 25 percent the previous week.
– Declines in yields and increased expectations for dovish Fed policy have reduced the attractiveness of the US Dollar as a higher-yielding safe-haven investment.
3. Eurozone Economic Sentiment Stabilizing:
– On the other side of the Atlantic, inflation data from the Eurozone has begun to moderate, but not as dramatically as in the US, giving the European Central Bank (ECB) slightly more room to maneuver.
– Recent statements from ECB members suggest a cautious, watch-and-wait approach, with policymakers not yet eager to discuss rate cuts.
– Eurozone unemployment remained stable at 6.5 percent, and economic sentiment has shown signs of bottoming out as industrial indicators across key economies like Germany have stabilized.
– Although
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