●EUR/USD stages a modest recovery after touching 1.0723, its lowest level in three weeks.
●Market participants anticipate ECB to hold rates steady at 4.5% in Thursday's policy decision.
●All eyes on Fed meeting Wednesday with consensus expecting unchanged 5.5% benchmark rate.
●Robust US employment figures fuel debate about Fed's policy trajectory in 2024.
The EUR/USD currency pair demonstrates resilience in Asian trading sessions, bouncing back from Friday's three-week bottom at 1.0723 to currently hover near 1.0760. This recovery occurs despite persistent strength in the US Dollar, which continues to draw support from unexpectedly positive economic indicators from the world's largest economy.
November's US labor market report delivered several surprises, with Nonfarm Payrolls expanding by 199,000 - substantially above forecasts - while the unemployment rate contracted to 3.7% from the prior month's 3.9%. Contrasting this, German inflation metrics showed stability, with the yearly Harmonized CPI holding at 2.3% and monthly figures mirroring October's 0.7% contraction.
Financial markets have largely priced in the European Central Bank maintaining its current 4.5% refinancing rate when policymakers convene later this week. Market speculation increasingly suggests the ECB might initiate monetary easing as early as March next year, creating potential headwinds for the Euro in medium-term projections.
Across the Atlantic, uncertainty prevails regarding the Federal Reserve's next moves, particularly concerning how long restrictive policies might persist. While Wednesday's meeting will likely see rates held at 5.5%, traders will scrutinize accompanying statements and economic projections for clues about 2024 policy direction.
The US Dollar Index maintains its position above the psychologically significant 104.00 threshold, buoyed by elevated Treasury yields. Current benchmarks show 2-year notes yielding 4.24% against 10-year bonds at 4.73%, maintaining an inverted yield curve that typically signals economic caution.
Market participants await Tuesday's US inflation data with heightened interest, as the CPI release could significantly influence near-term currency movements. Concurrently, Germany's ZEW Economic Sentiment survey for December will provide fresh insights into Eurozone economic expectations.