EUR/USD Waits at 1.1650 as Payroll Data Looms Large on Horizon

The EUR/USD currency pair is consolidating around 1.1650 as market participants adopt a cautious stance ahead of the highly anticipated US Nonfarm Payrolls (NFP) release. The pair has stabilized following a five-day losing streak, with trading activity concentrated within a tight bandwidth during Asian morning sessions on Friday.

Economic Backdrop in the Eurozone Signals Modest Recovery

Recent data from the European Commission paints a picture of gradual stabilization across the Eurozone economy. The Business Climate Index rebounded to -0.56 in December, improving from the previous month’s -0.66 reading. This modest uptick suggests corporate sentiment may be stabilizing after prolonged weakness.

Consumer confidence also showed resilience, climbing to -13.1 from -14.6, indicating households are gradually becoming less pessimistic about economic prospects. The Economic Sentiment Indicator, however, edged lower to 96.7 from 97.1, suggesting mixed signals in the broader economic outlook.

On the inflation front, Eurozone Producer Price Index rose 0.5% month-over-month in November, an acceleration from the prior month’s 0.1% increase and exceeding market forecasts of 0.2%. Year-over-year comparisons showed producer prices declining 1.7%, marking the fourth consecutive month of annual price decreases. Meanwhile, unemployment in the currency bloc ticked down to 6.3% in November from 6.4%.

ECB’s Steady Hand Supported by Inflation Expectations

ECB Vice President Luis de Guindos reaffirmed on Thursday that current interest rate levels remain “appropriate,” emphasizing that price growth has aligned with the central bank’s target, though uncertainty persists. This dovish messaging underscores the ECB’s preference for policy continuity.

According to analysis from BBH FX strategists, the ECB’s latest consumer survey reveals inflation expectations remain anchored at multi-year levels. The central bank’s November consumer expectations survey demonstrates medium-term inflation expectations holding steady across all measured horizons: one-year expectations at 2.8%, three-year at 2.5%, and five-year at 2.2%. These figures provide strong justification for the ECB to maintain its current policy rate at 2.00%.

US Labor Data Underpins Dollar Strength

The US Dollar has gained ground following recent labor market releases, which acted as a headwind for the EUR/USD pair. The Department of Labor reported that Initial Jobless Claims climbed to 208,000 in the week ended January 3, marginally below the market consensus of 210,000 but above the prior week’s revised 200,000 level. This modest uptick suggests gradual softening in labor conditions.

Continuing jobless claims surged to 1.914 million from 1.858 million, pointing to an expanding pool of individuals receiving ongoing unemployment benefits. The December NFP report, anticipated to show job creation of 60,000 positions—a decline from November’s 64,000—may offer additional perspective on Federal Reserve policy direction and labor market momentum heading into 2025.

What’s Next for EUR/USD

The pair remains vulnerable to additional downward pressure as the USD strengthens, though the ECB’s steadfast commitment to policy stability at 2.00% continues to support the Euro from more dramatic declines. The NFP data will likely be the primary catalyst determining whether EUR/USD can establish a meaningful floor near current levels or faces further selling pressure.