The EUR/USD is trading below 1.1500, the lowest levels in six weeks. The pair fell sharply on Wednesday on US Dollar strength stemming from three factors:
1) Excellent data
The ADP Non-Farm Payrolls report came out at 230,000 jobs gained in September, far above expectations and an upbeat figure in its own right. The publication serves as a hint towards the official NFP on Friday and raises expectations.
The ISM Non-Manufacturing PMI also beat early projections with a score of 61.6, the best level ever. The robust number implies a fast clip fo growth in the US services sector and also boosts expectations for Friday’s NFP.
2) US bond yields break higher
The 10-year Treasury bond yield broke above the previous highs of 3.13% and hit a new peak at 3.23%. The sharpy movement is atypical. Yields of earlier maturities also moved higher. The higher levels make the US Dollar more attractive. This was mostly felt in the USD/JPY but the EUR/USD was also pressured lower by the move.
3) Powell’s power play
Fed Chair Jerome Powell made his fourth public appearance in a week but this time was slightly different. The central banker explicitly said that monetary policy of the Federal Reserve may become tight, at least temporarily.
Some Fed officials want to stop when the rate reaches neutral but the man at the top opened the door to having interest rates above the level of inflation. Some speculate the Fed may even raise rates five times in 2019.
Elsewhere
Tensions around Italy are not as high as they used to be. The Italian government sticks to its plans to have a budget deficit of 2.4% in 2019, breaching EU rules. However, the coalition partners of the populist government agreed on lower deficits for 2020 and 2021, aiming to appease the European Commission. The Italian government is waiting for a verdict on its budget later this month.
