EUR/USD may be set to enter a range-bound period as Fed and ECB rate paths appear to be converging a bit following the U.S. jobs report on Friday.
Following the downside surprise to payrolls, EUR/USD spiked up, piercing the 55- and 200-DMAs on its way to a near one-month high.
The April payroll data showed unemployment climbed to 3.9%, above the 3.8% estimate, while payrolls printed 175k versus estimates for 243k and average hourly earnings fell to 0.2% from 0.3% in March.
U.S. Treasury yields (US2YT=RR) spiked lower and short-term rates markets priced in more than 50bps of Fed cuts for 2024, an increase from near 35bps on Thursday.
The dollar’s yield advantage over the euro eroded as German-U.S. spreads (US2DE2=RR) hit their tightest since April 2.
EUR/USD’s rally may not have much further to run, however, and the broader 1.0500-1.1100 range could hold as investors may now see rate-cutting paths for the ECB and Fed converge after their recent divergence.
Should future jobs reports indicate softening labor markets U.S. rates and yields could sink further and investors price in more Fed cuts, which would bring its policy path more into alignment with investors’ expectations for ECB easing.
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