Euro soars after strong data

EUR/USD soars to 1.0800 as the US Dollar weakens in Friday’s early American session. The US Dollar faces an intense sell-off as the United States Bureau of Labor Statistics (BLS) has reported that labor demand remains weak and wage growth slowed in April. The US Dollar Index (DXY), which tracks the Greenback’s value against six major currencies, has printed a fresh three-week low near 104.50. 

The market sentiment has improved significantly as the weak Nonfarm Payrolls (NFP) report will strengthen speculation for the Federal Reserve (Fed), reducing interest rates from the September meeting. Generally, slower wage growth and weak labor demand result in poor consumer spending momentum, which indicates that inflationary pressures could ease. This situation would be unfavorable for the US Dollar and bond yields and would likely strengthen the EUR/USD pair, as it would allow the Fed to rollback its restrictive interest rate framework. 

The US Dollar was already on the back foot due to weak Q1 Nonfarm productivity growth, and less hawkish guidance on interest rates than feared by the Fed in its monetary policy statement on Wednesday. 

Meanwhile, the ISM Services Purchasing Managers Index (PMI) data for April have also missed expectations. Services PMI data, a survey that gauges the performance in the services sector, which accounts for two-thirds of the economy, falls sharply below the 50.0 threshold to 49.4. Investors anticipated to have increased to 52.0 from the prior reading of 51.4. New Business inflows fall sharply to 52.2 from the former release of 54.4. However, Prices Paid rises strongly to 59.2, which reflects stubborn price pressures. The US economic indicator provides fresh cues about the state of the labour market and the health of the services sector, two key elements that the Fed takes into account when deciding on interest rates.