As October’s headline non-farm payrolls figure failed to rebound as far as forecast this left US Dollar exchange rates on a generally softer footing ahead of the weekend.
Even though the unemployment rate unexpectedly fell from 4.2% to 4.1% this was coupled with severely disappointing wage growth, undermining confidence in the health of the labour market.
With average weekly earnings stagnating on the month in October the Federal Reserve is likely to face something of a headache.
As some Fed officials have previously expressed concerns over the weakness of domestic wage growth this poor showing could encourage a greater sense of caution at the December policy meeting.
Although markets do not see any particular likelihood of the Fed failing to deliver another interest rate hike before the end of the year this did not prevent the US Dollar trending lower.
The Trump administration’s choice of Jerome Powell as the next Fed Chair could also limit the odds of the central bank pursuing a more aggressive pace of monetary tightening over the coming year.
If signs continue to point towards a less hawkish Fed outlook this could put the US Dollar Euro exchange rate under renewed pressure.
Even so, James Knightley, Chief International Economist at ING, noted:
‘With the economy growing strongly and tax reform likely to add further fuel to the fire, the case for higher US interest rates continues to build. Barring an economically damaging government shutdown in early December we expect the Fed to hike rates on Dec 13 with at least two further rate rises probable under new Fed Chair Jerome Powell next year.’
Ongoing Catalan Tensions Limit Euro Upside Potential
The Euro struggled to capitalise fully on the softening of the US Dollar, though, thanks to resurgent worries over the Catalan crisis.
After eight members of the deposed regional administration were remanded into custody on Thursday tensions have begun to flare up once again.
Many Catalans view the move as being purely driven by politics, with further unrest likely if former president Carles Puigdemont is detained under a European arrest warrant.
However, the single currency could find greater support if the finalised raft of October services PMIs prove positive.
Following on from the Eurozone manufacturing PMI hitting an 80-month high another strong showing here could encourage confidence in the economic outlook.
If the currency union remains on track to outstrip the US economy in terms of growth for the second year running this is likely to weigh heavily on the USD EUR exchange rate.
Current USD EUR Interbank Exchange Rates
At the time of writing, the US Dollar Euro exchange rate was making solid gains around 0.8604. Meanwhile, the Euro US Dollar exchange rate was trending lower in the region of 1.1617.