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EUR/USD moved higher during European trading on Wednesday and held on to key support at 1.0500. EUR/USD traded mostly sideways as investors awaited a motion of no confidence in French Prime Minister Michel Barnier from France’s far-right and left-wing parties. The vote heightened political uncertainty in the euro zone’s second-largest country, hurting the euro (EUR) as the collapse of the French government becomes increasingly likely.
From the perspective of the economic calendar, investors will also focus on the United States (US) ADP employment changes and ISM services purchasing managers index (PMI) data for November released during the North American session.
Economists expect the U.S. private sector to add 150,000 jobs in November, down from 233,000 in October. During the same period, the Services Purchasing Managers Index (Services PMI), which measures service industry activity, is expected to fall to 55.5 from the previously released 56.0, indicating a slowdown in economic growth.
The economic data will influence market expectations for possible interest rate actions from the Federal Reserve (Fed) at its December 18 monetary policy meeting. According to the CME FedWatch tool, there is a 74% chance that the Fed will cut its key lending rate by 25 basis points to 4.25%-4.50%, and there is a 26% chance of keeping interest rates unchanged at current levels.
Investors will also be watching the Federal Reserve’s Beige Book and Chairman Jerome Powell’s speech Wednesday for new guidance on interest rates.
Meanwhile, a string of Fed officials have said recently that they believe more rate cuts are appropriate as inflation continues to cool. “I expect that a continued shift to more neutral policy settings will be appropriate over time,” New York Fed President John Williams said on Monday. However, Williams did not provide any target for the federal funds rate and said the path would depend on the data.
The U.S. dollar (USD) is showing a subdued trend ahead of the release of data on private sector employment and services sector activity. The U.S. Dollar Index (DXY), which tracks the dollar’s value against six major currencies, was trading around 106.30.
The outlook for the U.S. dollar remains generally positive as U.S. President-elect Donald Trump threatens to impose 100% tariffs on BRICS countries. “The idea that the BRICs are trying to break away from the dollar while we stand by and do nothing is over,” Trump wrote on social media over the weekend.
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