Euro Edges Higher as Weak US Labor Data and Lower Oil Prices Temper Fed Hike Bets
The Euro edged higher on Wednesday as weak US labor data and lower oil prices tempered Federal Reserve rate-hike expectations. The EUR/USD pair traded around 1.1554, up nearly 0.20% on the day.
The ADP Employment Change rose by only 44K in July, missing forecasts of 70K and slowing from 98K in June. The ISM Services Purchasing Managers Index (PMI) also fell short of expectations at 54.1 in July, down from 54 in June.
The CME FedWatch Tool shows traders now price in a 56% chance of a September rate hike, down from 67% the previous day. Strategists at Brown Brothers Harriman highlighted that recent communications from the FOMC suggest participants 'broadly agree that the labor market is in balance but are more divided over the durability of the inflation threat.'
The divergence on inflation leaves Fed fund futures 'more sensitive to inflation than employment data.' Lower oil prices reduce inflation risks, although US inflation remains above the Fed's 2% target.