The euro rose in the European market on Friday against a basket of global currencies, extending gains for the third consecutive day against the US dollar, hitting a one-week high, and on track for a weekly gain. The rise comes on reports that monetary policymakers at the European Central Bank are divided over whether to continue to make further cuts after the expected cut later this month.
Hopes of narrowing the interest rate gap between Europe and the United States
With the odds of the Federal Reserve cutting US interest rates by around 50 basis points in September, hopes of narrowing the interest rate gap between Europe and the US are growing, pending the release of the August US jobs report later today.
Price overview
EUR/USD exchange rate today: EUR/USD rose 0.1% to $1.1121, the highest in a week, from the opening price of $1.1110, and hit a low of $1.1106.
Previous euro trading: The euro ended Thursday up 0.25% against the dollar, the second consecutive daily gain, after gloomy data on new jobs in the US private sector was released in August.
Weekly performanc
Over the course of this week’s trading, which officially ends when prices settle today, the euro rose about 0.7% against the dollar, on the verge of notching its fifth weekly gain in a month and a half.
ECB Monetary Policy
According to sources familiar with the discussions, monetary policymakers at the European Central Bank are increasingly at odds over the growth prospects, a disagreement that shows the divide over the future of further cuts in European interest rates. Some ECB members are concerned about weak and stagnant economic activity in the region, while others focus on ongoing inflation pressures.
European interest
The European Central Bank cut interest rates by about 25 basis points in June, and is almost certain to ease them again by about 25 basis points in September thanks to the recent slowdown in price growth. However, policy decisions at subsequent meetings are expected to be more complicated as the Eurozone economy enters a more precarious state.
American interest
US data: The US private sector added worse than expected new jobs in August, data showed on Thursday, adding that the US labor market lost momentum.
Interest rate rate pricing : Following the data, US rate cut pricing increased by 50 basis points at the September meeting from 42% to 43%, and cut rate pricing fell by 25 basis points from 55% to 57%.
Monthly jobs report: Investors await the release of other important data on the US labor market in the monthly report on new jobs in the US in August.
Interest rate gap
The interest rate gap between Europe and the US currently stands at 125 basis points in favor of US interest rates. With the current prospects for European and US interest rates, the gap is expected to continue in September, but could shrink to 100 basis points if the Federal Reserve cuts interest rates by about 50 basis points.
Impact on the exchange rate of the euro against the dollar
If the US jobs data is worse than market expectations, the odds of a US interest rate cut will increase by about 50 basis points, which will support a rise in the EUR/USD exchange rate.
Technical overview
The EURUSD rate breaks through resistance, reinforcing expectations that the market will continue to rise in the coming days.
Read also:OCBC expects USD to perform following labor market data release
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