EUR/USD steadies near 1.1650 ahead of US Nonfarm Payrolls

• EUR/USD trades in a narrow range as traders stay cautious ahead of the US Nonfarm Payrolls report.

• The US Dollar strengthens following the release of US weekly labor market data.

• BBH FX analysts say steady ECB inflation expectations support keeping rates unchanged at 2.00%.

EUR/USD holds ground after five days of losses, trading around 1.1650 during the Asian hours on Friday. Traders remain cautious ahead of the US Nonfarm Payrolls (NFP) report, which is expected to offer further insight into labor market conditions and the Federal Reserve’s (Fed) policy outlook. December NFP is forecast to show job gains of 60,000, down from 64,000 in November.

However, the pair could face further downside as the US Dollar (USD) strengthens following the release of US weekly labor market data. The US Department of Labor (DOL) reported on Thursday that Initial Jobless Claims rose modestly to 208,000 in the week ended January 3, slightly below market expectations of 210,000 but above the previous week’s revised 200,000. Continuing jobless claims increased to 1.914 million from 1.858 million, indicating a gradual rise in the number of people remaining on unemployment benefits.

In the Eurozone, the European Commission’s Business Climate Index improved to -0.56 in December from -0.66, signalling a modest stabilisation in corporate conditions. Consumer Confidence strengthened to -13.1 from -14.6, while the Economic Sentiment Indicator edged down to 96.7 from 97.1.

Eurozone Producer Price Index (PPI) rose 0.5% month-over-month (MoM) in November, accelerating from 0.1% previously and well above market expectations of 0.2%. On a year-over-year (YoY) basis, producer prices declined 1.7%, extending the run to a fourth consecutive month of annual contraction. Meanwhile, the Eurozone unemployment rate edged down to 6.3% in November from 6.4%.

ECB Vice President Luis de Guindos said on Thursday that the current level of interest rates is “appropriate,” adding that inflation is now at target, though uncertainty remains very high.

BBH FX analysts report that the ECB’s latest consumer survey shows inflation expectations holding steady, reinforcing the case for keeping rates unchanged at 2.00%. The ECB’s November CPI consumer expectations survey suggests the central bank is well positioned to remain on hold. Inflation expectations for 1, 3, and 5 years were unchanged at 2.8%, 2.5%, and 2.2%, respectively, consistent with inflation stabilizing around the ECB’s 2% medium-term target.