EUR/USD has steadied on Friday, after suffering sharp losses on Thursday following the ECB rate statement. Currently, the pair is trading at 1.1212, up 0.04% on the day. On the release front, German Factory Orders were dismal, declining by 2.6%. This marked a third straight decline. In the U.S., the focus will be on employment numbers, and the markets are anticipating mixed results. Wage growth is expected to improve to 0.3%, but nonfarm payrolls are projected to fall sharply to 180 thousand. If the market forecast is accurate, the euro could rebound with strong gains.
The euro plunged 1.0% on Thursday, falling to its lowest level since June 2017. This was in response to the ECB rate statement and comments from Mario Draghi, which were more dovish than expected. The ECB announced that it was extending its forward guidance on interest rate levels, saying that it would not raise rates before 2020. Although this should not have come as a surprise, the ECB had been on record until now as saying that rates could move higher in late 2019. In an acknowledgment to the slowdown in the eurozone, the ECB announced a new round of long-term loans to eurozone banks and slashed the 2019 GDP forecast for the bloc to 1.1%, down from 1.7% in the previous forecast. Mario Draghi reinforced the bank’s dovish stance in his press conference, saying that downside risk was pointed to the downside, although a recession was unlikely.
Although the U.S. economy is in much better shape than the eurozone, the Federal Reserve is also sending out a dovish message, in stark contrast to its aggressive stance in 2018, when it raised rates four times. Fed chair Powell has said the bank would be patient before any rate hikes. Earlier this week, Boston Fed President, said that there was some downside risk to the U.S. economy and called on policymakers to be “patient” for several more meetings in order to evaluate the risks to the economy. Without being explicit, Rosengren appears to support the Fed remaining on the sideline for the upcoming policy meetings until the Fed can better gauge the health of the U.S. economy.
