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Euro falls as US jobs numbers support dollar recovery

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News Tech: The euro plunged on Monday after surging last week following a hawkish turn from the European Central Bank, as traders turned to the dollar, betting on a surge in US jobs created in January could lead to a rapid increase in the US Federal Reserve rate. The single euro fell 0.2 percent to $1.1425, having hit its highest level since mid-January on Friday. These gains were fueled by a sharp shift from the ECB, which set the market price at a time of likely eurozone rate hikes and sent bond yields soaring.

He said the bank may end its stimulus program earlier than expected, but it is unlikely to raise the main interest rate in July.
The dollar found support, supported by rising US Treasury yields after much better-than-expected jobs data on Friday. Markets have now priced in the one-in-three chance that the Fed could raise 50 basis points in March and a reasonable chance that rates will hit 1.5% by the end of the year. These expectations may be underpinned by the US consumer price index expected on Thursday.

“The clear signal from Chairman Lagarde that the door for a rate hike will open later this year is a real game changer for the forex market,” said MUFG analyst Lee Hardman. “Over the past year, the euro has underperformed expectations that the ECB will maintain accommodative policy while the BoE and Fed tighten,” said Hardman, predicting market participants will narrow their positions short-term financial position in euros. ECB policymaker Martins Kazaks pushed back against market expectations for a rate hike in early July in an interview with Reuters.

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The dollar index was last unchanged on the day at 95, but off the low of 95.136 hit last week ahead of labor market data. U.S. two-year yields held steady after strong gains in jobs data and briefly touched a new two-year high of 1.33%. The yen was slightly stronger at 115.14 against the dollar, while the pound rose 0.1% to $1.3537, both in the middle of their recent ranges.
Markets will be keeping an eye on expected speeches from policymakers at the Fed and the UK, European, Australian, and Canadian central banks this week to see if they drop any more clues. interest rate policy or not.

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