EUR/USD declines as Eurozone data weighs, US labor reports awaited

• EUR/USD gives back recent gains and slips toward 1.1710 after rejection near 1.1740.
• A downward revision of Eurozone PMIs and lower inflation in Germany renew selling pressure on the Euro.
• Markets await key US labor data to refine expectations for US monetary policy.

EUR/USD trades in a volatile environment on Tuesday and is hovering around 1.1710 at the time of writing, down 0.15% on the day. The pair has erased earlier gains as disappointing European macroeconomic indicators have revived concerns about the Eurozone growth outlook.

Downward pressure on the single currency intensified following the revision of the Eurozone HCOB Services Purchasing Managers Index (PMI), released earlier in the day. The index is now estimated at 52.4 in December, down from a preliminary reading of 52.6 and after 53.1 in November. These figures point to a slowdown in activity in the services sector, a key pillar of the European economy.

Meantime, German inflation data released earlier on Tuesday show a clear easing in price pressures. Annual inflation, as measured by the Consumer Price Index (CPI), declined to 1.8% in December from 2.3% in November, while the Harmonized Index of Consumer Prices (HICP) fell to 2% from 2.6%, below market expectations. These figures reinforce the view of a more benign inflation environment in the Eurozone, limiting near-term support for the Euro (EUR).

On the US side, data released on Tuesday have also contributed to choppy trading in EUR/USD. The Services PMI was revised down to 52.5 in December, its lowest level in eight months, and the Composite PMI fell to 52.7. According to S&P Global, softer demand, weaker new orders, and a slowdown in employment suggest that the US economy is losing momentum, even as cost pressures remain elevated.

Expectations surrounding US monetary policy therefore remain a key driver for the pair. Fed Governor Stephen Miran said on Tuesday that he expects incoming data to support further rate cuts and argued that the Federal Reserve should cut rates by more than 100 basis points this year, citing that current monetary policy remains restrictive and is holding back economic growth.

Overall, EUR/USD continues to trade in an environment shaped by mixed macroeconomic signals on both sides of the Atlantic. The absence of a clear catalyst is keeping the pair in uneven trading conditions, while investors now look ahead to a series of key US labor market reports to better assess the timing of potential Fed easing and the near-term direction of the US Dollar.