Daily digest market movers: EUR/USD consolidates as US Dollar steadies
- EUR/USD exhibits a sideways move around 1.0770 as the US Dollar remains broadly steady in the aftermath of the United States labor market and the ISM Services Purchasing Managers Index (PMI) data for April released on Friday. The US Nonfarm Payrolls (NFP) report showed that fresh labor additions were significantly lower than the consensus and wage growth softened on a monthly and an annual basis.
- Easing labor market conditions weighed on the US Dollar Index (DXY), which fell to an almost four-week low of 104.60. However, the USD index recovered quickly as the ISM Services PMI showed that businesses pay higher prices for inputs.
- The ISM Services Prices Paid rose to 59.4 in April from 53.4, which suggested a stubborn inflation outlook. The inputs in the service sector are mainly the salaries paid to employees, which often leads to higher consumer spending and eventually prompts price pressures. Though the ISM Services PMI, which represents the service sector that accounts for two-thirds of the economy, falls below the 50.0 threshold to 49.4, the lowest reading since December 2022.
- Easing labor market conditions and weak ISM Service PMI have raised concerns over the US economic outlook. These have strengthened speculation for the Fed reducing interest rates in the September meeting. The CME FedWatch tool shows that traders see a 70% chance that interest rates will be lower than actual levels in September.
- Contrary to market expectations, Fed Governor Michelle Bowman said on Friday she would be willing to raise interest rates further if progress in declining inflation to 2% stalls or reverses Reuters reported. However, she is confident that inflation will decline even if interest rates remain where they are.
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