The EUR/USD pair experienced a decline during the North American session, falling by 0.75%. This movement is attributed to a broader strengthening of the US Dollar, influenced by Trump’s moderate-hawkish selection to head the Federal Reserve and an inflation report that supports the case for maintaining steady interest rates by the Federal Reserve. Currently, the pair is trading at 1.1882, having declined from daily highs of 1.1974.
EUR/USD declines by 0.75% following the impact of Kevin Warsh’s Fed nomination, which has led to an increase in US yields and heightened demand for the Dollar. Strong US producer inflation supports the Fed’s decision to maintain steady rates, resulting in Treasury yields rising above 4.25%. Robust GDP figures from Germany and the Eurozone do not counterbalance the strength of the Dollar, which is influenced by adjustments in policy expectations.
>The Euro has fallen below 1.19, influenced by the hawkish stance of Fed leadership and persistent inflation that dampens expectations for rate cuts: Kevin Warsh is poised to be Trump’s selection for the next Fed Chairman of the Federal Reserve, validating the speculations that emerged late on Thursday. The financial markets experienced a decline in precious metals, while the Dollar saw a nearly 1% increase, as indicated by the US Dollar Index, which measures the currency’s performance against six counterparts. The DXY appears set to conclude the day above the 97.00 mark. US Treasury yields increased, with the 10-year yield climbing nearly one basis point to 4.25%. Alongside Warsh’s appointment, US inflation on the producer side has increased, moving further away from the Federal Reserve’s 2% target, which supports the Fed’s decision. In addition to the December Producer Price Index figures, the speeches delivered by Federal Reserve officials dominated the news cycle. Recent developments indicate that the US Senate has successfully negotiated a deal to pass the government funding package this evening, thereby preventing a shutdown, as reported. US Treasury yields are increasing, indicating that speculators perceive a reduced likelihood of Warsh making rate cuts “indiscriminately” to appease the White House. The yield on the US 10-year Treasury note has increased by one and a half basis points, currently standing at 4.247% as of this writing. The German economy in Europe experienced a growth of 0.4% YoY, surpassing expectations. Despite the better-than-expected Gross Domestic Product figures in Germany and the Eurozone, along with the uptick in German inflation, there has been no substantial support for the pair. Next week, the US economic calendar will include a series of US jobs data, remarks from Fed officials, and the ISM Manufacturing and Services PMIs for January. In Europe, the HCOB Flash PMIs for the bloc, along with those for Germany and France, as well as the European Central Bank’s monetary policy meeting, may induce some fluctuations in the EUR/USD pair.
Latest FX Rate Trends: The Dollar’s resurgence impacts the Euro
- St. Louis Federal President Alberto Musalem indicated that the central bank is not required to reduce interest rates further at this moment, as the existing policy rate range of 3.50%-3.75% is approximately at a neutral level. He indicated that additional reductions would only be warranted if there is a significant decline in the labor market or a substantial decrease in inflation.
- Fed Governor Stephen Miran stated that Kevin Warsh would be a strong candidate for the Fed, noting that the recent increase in producer prices has primarily been influenced by housing expenses and portfolio management fees.
- Meanwhile, Christopher Waller observed that the labor market continues to show weakness, even in the face of consistent economic growth. He contended that inflation would approach 2% if not for tariffs, which he claimed maintained price growth near 3%, and further stated that monetary policy ought to be nearer to neutral, approximately 3%.
- Atlanta Fed President Raphael Bostic emphasized the need for patience regarding policy, indicating that rates ought to stay moderately restrictive. He cautioned that the complete inflationary effects of tariffs have not fully manifested and anticipates that price pressures will continue to be enduring.
- The US Bureau of Labor Statistics reported that the Producer Price Index inflation remained stable at 3.0% year-over-year in December, consistent with November’s figures and falling short of forecasts that anticipated a decrease to 2.7%. Core PPI, excluding food and energy, increased to 3.3% YoY from 3.0%, contrary to expectations for a drop to 2.9%, highlighting persistent upstream price pressures.
- The Gross Domestic Product for the final quarter of the previous year in the European Union experienced a growth of 1.4% year-over-year, remaining consistent with Q3 figures, yet surpassing the anticipated rate of 1.2%. In Germany, the economy in Q4 surpassed expectations of 0.3%, increasing by 0.4% year-over-year, an improvement from the Q3 growth of 0.3%.
- In January, Germany’s inflation, as indicated by the Harmonized Index of Consumer Prices, increased slightly from 2% to 2.1%, remaining within the European Central Bank’s target range.