The Euro (EUR) weakens further against the US Dollar (USD) on Thursday as the Greenback extends its advance following the release of weekly US labor-market data. At the time of writing, EUR/USD is hovering near the 1.1600 psychological level, marking its lowest level since December 2.
Data released by the US Department of Labor showed that Weekly Initial Jobless Claims fell to 198,000 in the week ended January 10, undershooting market expectations of 215,000. The previous week’s figure was revised lower to 207,000 from 208,000.
Meanwhile, the four-week moving average of Initial Claims fell to 205,000 from a downwardly revised 211,500.
Regional manufacturing data also improved, with the Empire State index rising into positive territory at 7.7 from -3.7, while the Philadelphia Fed survey climbed to 12.6 from -8.8.
In reaction, the US Dollar Index (DXY), which tracks the Greenback’s value against a basket of six major currencies, climbed to more than one-month highs near 99.35, its strongest level since December 3.
Chicago Fed President Austan Goolsbee welcomed the data, saying he was “not surprised” by the low jobless claims reading and noting that there is still strength in jobs and that overall growth remains “good.” He added that the latest figures point to continued stability in the labor market.
On monetary policy, Goolsbee said he still expects the Federal Reserve (Fed) to cut interest rates this year, but stressed that policymakers need incoming data to affirm that outlook. He added that rates “can still go down a fair amount,” but only if there is firm evidence that inflation is retreating. Goolsbee also reiterated that the most important challenge facing the Fed remains getting inflation back to the 2% target.
Separately, Atlanta Fed President Raphael Bostic struck a more cautious tone, saying the central bank needs to keep policy restrictive because inflation remains too high. Bostic added that he expects inflation pressures to persist through 2026, while projecting economic growth to remain resilient, with GDP growth seen running north of 2% in 2026.
Fed FAQs
Monetary policy in the US is shaped by the Federal Reserve (Fed). The Fed has two mandates: to achieve price stability and foster full employment. Its primary tool to achieve these goals is by adjusting interest rates.
When prices are rising too quickly and inflation is above the Fed’s 2% target, it raises interest rates, increasing borrowing costs throughout the economy. This results in a stronger US Dollar (USD) as it makes the US a more attractive place for international investors to park their money.
When inflation falls below 2% or the Unemployment Rate is too high, the Fed may lower interest rates to encourage borrowing, which weighs on the Greenback.
The Federal Reserve (Fed) holds eight policy meetings a year, where the Federal Open Market Committee (FOMC) assesses economic conditions and makes monetary policy decisions.
The FOMC is attended by twelve Fed officials – the seven members of the Board of Governors, the president of the Federal Reserve Bank of New York, and four of the remaining eleven regional Reserve Bank presidents, who serve one-year terms on a rotating basis.
In extreme situations, the Federal Reserve may resort to a policy named Quantitative Easing (QE). QE is the process by which the Fed substantially increases the flow of credit in a stuck financial system.
It is a non-standard policy measure used during crises or when inflation is extremely low. It was the Fed’s weapon of choice during the Great Financial Crisis in 2008. It involves the Fed printing more Dollars and using them to buy high grade bonds from financial institutions. QE usually weakens the US Dollar.
Quantitative tightening (QT) is the reverse process of QE, whereby the Federal Reserve stops buying bonds from financial institutions and does not reinvest the principal from the bonds it holds maturing, to purchase new bonds. It is usually positive for the value of the US Dollar.
Source: https://www.fxstreet.com/news/eur-usd-slides-toward-11600-as-us-data-beat-expectations-202601151433
