Euro pares losses as risk sentiment improves despite weak German data

• 1.1200 is within reach for EUR/USD. The pair has rebounded from Friday’s lows near 1.1130.
• At the start of the week, lower oil prices and continuing diplomacy aimed at ending the US-Iran war have helped ease AI concerns.
• Dollar declines are likely to be contained by robust US figures and expectations of further Fed tightening.

The Euro (EUR) has gained about 0.4% against the US Dollar (USD). A quiet start to the week and modest risk appetite have outweighed disappointing German Trade Balance figures published earlier on Monday. At the time of writing, EUR/USD trades around 1.1190, above Friday’s high of 1.1130.

Brent oil is consolidating below the key $100 threshold, offering significant relief to the Eurozone’s oil-importing economies. Modest optimism marks the start of the week, with major European equity indices posting measured gains. AI concerns have subsided for now, while diplomatic work to bring the Middle East conflict to an end continues.

September’s German trade surplus fell to EUR 15.6 billion from EUR 17.8 billion in August, according to Destatis figures published earlier on Monday. The result missed expectations of EUR 19.2 billion as imports rose much more sharply than exports. Nevertheless, upbeat market sentiment has outweighed the disappointing Trade Balance release.

165K payroll gain fails to support safe-haven USD despite Fed tightening expectations

Friday’s US Nonfarm Payrolls release showed a net increase of 165K jobs, well above the 65K gain expected by the market. The Unemployment rate fell to 4.1%.

Following the figures, markets became more confident that the Federal Reserve (Fed) would raise interest rates again at its December meeting. Later that day, New York Fed President John Williams, St. Louis Fed President Alberto Musalem and San Francisco Fed President Mary Daly supported that view.

In a research note, Commerzbank Research analysts point out that “of the 18 Fed officials who submitted projections for the appropriate path of interest rates in September, 16 anticipated at least one more rate hike this year (...)” The bank adds that “the data released since then are unlikely to have changed that assessment materially,” reinforcing that assessment.

Solid US labour market supports Fed rate hike expectations

16 of 18 Fed officials anticipated further tightening this year. Commerzbank Research highlights that “of the 18 Fed officials who submitted projections for the appropriate path of interest rates in September, 16 anticipated at least one more rate hike this year,” adding that “the data released since then are unlikely to have changed that assessment materially.” Recent figures give the Federal Reserve scope to tighten policy further, the bank’s analysts argue, as “on balance, the U.S. labor market remains solid and poses no obstacle to further interest rate hikes.”