Euro falls violently as the US labor market

Today’s market analysis on behalf of Samer Hasn Market Analyst and part of the Research Team at XS.com

The euro fell sharply today after 1:30 p.m. GMT, after reversing its gains into losses of more than 0.5%.

The euro’s sharp decline came as US labor market figures beat expectations with the most jobs added in a year and the fastest pace of wage growth in two years.

While these figures put more pressure on the euro to decline, with the markets’ hopes diminishing that the Federal Reserve will cut interest rates at a meeting next March.

The probability that the Federal Reserve will cut interest rates by 25 basis points has decreased to only about 21%, after it was at 38% yesterday and more than 75% more than a month ago. While markets now expect a 78% probability that the Fed will not change current rates in March, according to the CME’s FedWatch Tool.

At the same time, pressure is increasing on the European Central Bank to reduce interest rates, as economic activities continue to contract continuously for more than a year, with no immediate horizon for restoring growth or even stopping the contraction.

The US labor market added 353,000 jobs in the non-farm sector last January, which was far from expectations of 187,000. Moreover, this reading is higher than the reading in January of last year.

The growth of average hourly earnings also accelerated to the highest pace since February 2022, with growth of 0.6% on a monthly basis, which was double the expected growth of 0.3%. On an annual basis, average wages grew by 4.5% in January, the fastest pace since February of last year.

In addition, the unemployment rate held steady at 3.7% in January, which was contrary to expectations of a rise to 3.8%.