Euro rebounds today with weak US employment figures and after further decline in inflation in the Eurozone

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

Today, the euro was able to reverse course and move to record gains against the US dollar by 0.06% at approximately 1:30 pm GMT, in light of sideways movements since the beginning of the week.

The euro’s rebound today came with a weaker-than-expected non-farm employment performance in the US offsetting the pressure caused by also weak inflation data from the Eurozone.

The non-farm private sector added only 107 thousand jobs in January according to ADP, compared to expectations of 148 thousand and down from the previous reading of 158 thousand jobs.

These moves also come with caution as markets await the decision of the Federal Open Market Committee (FOMC) and the speech that follows it and try to get signals about the next steps of policymakers, especially after the strong economic data that we have witnessed since the beginning of this month.

In the Eurozone, starting with Germany, annual inflation witnessed a greater than expected decline to 2.9% in January, down from 3.7% previously. On a monthly basis, inflation returned to growth by 0.2% as expected, and this represents the fastest pace since last September. This pressure on inflation to decline was due to the contraction in energy prices by 2.8%, while services prices rose to 3.4% from 3.2% on an annual basis.

We also witnessed a larger than expected decline in import prices in Germany last December. It declined by 8.5% on an annual basis after a 9% decline in November. Prices also decreased by 1.1% on a monthly basis, which is the fastest pace since last June.

While the biggest pressure on import prices to decline was the sharp decline in energy prices, specifically natural gas, whose import prices fell by about 50% on an annual basis, in exchange for an increase of 1.8% for capital goods and an increase in the prices of a group of foodstuffs. With the exception of future energy items, import prices declined by 2.4% on an annual basis.

The unemployment rate also held steady, contrary to expectations, and remained at the highest levels since June of 2021, at 5.8% this January, for the fourth month in a row.

In France, inflation fell significantly to 3.1% on an annual basis in December from 3.7% in November, and prices contracted more than expected on a monthly basis by 0.2%.

Also in Italy, the unemployment rate fell more than expected to the lowest level since mid-2020 at 7.2%.