EUR/USD edges down to near 1.0940 after German Employment data, focus shifts to US data

• EUR/USD pares gains amid upbeat US Dollar.
• German Unemployment Change reduced to 5K from 22K prior.
• The seasonally adjusted Unemployment Rate remained consistent at 5.9%.
• The improved US Treasury yields are reinforcing the strength of the Greenback.

EUR/USD struggles to retrace its recent losses registered in the previous session, trading near 1.0940 during the European session on Wednesday. The moderate German Unemployment data for December seems to have weighed on the Euro (EUR). The Unemployment Change showed that the number of unemployed people was reduced to 5K against the market consensus of 20K and 22K prior. However, the seasonally adjusted Unemployment Rate remained consistent at 5.9% as expected.

EUR/USD pair faced challenges due to the risk-off market sentiment. Market participants lean towards the possibility of policy rate cuts from the European Central Bank (ECB) as a measure to prop up the economy. Moreover, ECB policymaker Pablo Hernandez de Cos emphasized on Tuesday that economic data uncertainty remains high and the ECB’s decision to start cutting interest rates would be data-driven. However, investors seem to have priced in six rate cuts for 2024 from the ECB.

Market participants are reassessing the likelihood of interest rate cuts by the US Federal Reserve (Fed) in the first quarter of 2024, driven by expectations of tepid growth in the United States (US) economy towards the end of the year. This reassessment has contributed to the strength of the Greenback, with the upbeat US Dollar Index (DXY) maintaining its winning streak near 102.30 by the press time.

The continued gains of the US Dollar are supported by enhanced US Treasury yields. At the time of writing, the 2-year and 10-year yields on US Treasury bonds stand higher at 4.36% and 3.98%, respectively. Investors are anticipated to closely monitor US data on Wednesday, including the December ISM Manufacturing PMI, November JOLTS Job Openings, and the Federal Open Market Committee (FOMC) Minutes.

(This story was corrected on January 3 at 10:30 GMT to say, in the first bullet point, that EUR/USD pares gains amid an upbeat US Dollar instead of gaining ground.)