Euro Heads for Best Weekly Performance in 16 Years as Dollar Weakens Before US Jobs Report
The euro is on track for its strongest weekly gain against the dollar in 16 years this Friday, bolstered by Germany's significant fiscal reform plans. Meanwhile, the US dollar hovers near a four-month low as markets await the latest American employment figures.
Currency markets experienced considerable volatility this week, driven primarily by uncertainties surrounding US trade policies and economic growth prospects. The pivotal development came from Europe, where Germany, the continent's largest economy, abandoned long-standing fiscal constraints to increase spending and stimulate growth.
"This week is a watershed moment...because we've lived through a couple of years of dollar and US growth exceptionalism and dollar strength," explained Kenneth Broux, head of corporate research FX and rates at Societe Generale.
Market attention now shifts to Friday's US nonfarm payrolls report, which will provide crucial insights into the health of the American economy and its implications for inflation and future interest rate decisions. Economists anticipate the US added approximately 160,000 jobs in February, up from 143,000 in January, with unemployment expected to remain steady at 4.0%.
The US dollar index is heading toward its worst weekly performance since early November, when Donald Trump won the presidential election. Conversely, the euro is set to achieve its largest weekly jump since March 2009.
"Right now we're in a situation where investors are buying dips in euro/dollar and I think payrolls today can only accelerate the move higher," Broux noted. "I do not think that a stronger NFP print is going to stop this move higher in euro/dollar. It could slow it, but I don't think it's going to change the trend."
The European currency reached a four-month high in the previous session, supported by the European Central Bank's hawkish rate cut and surging European bond yields following Germany's substantial spending proposal.
President Trump's announcement Thursday of a temporary reprieve from tariffs for Mexico and Canada provided little comfort to unsettled markets. The exemption expires on April 2, after which Trump stated he will impose reciprocal tariffs on all US trading partners. Following this news, the dollar lost ground against both the Canadian dollar and Mexican peso.
According to Kieran Williams, head of Asia FX at InTouch Capital Markets, the dollar has "fallen out of favour" amid the uncertainty, with the perceived inflationary impact of tariffs no longer sufficient to support it. "Ahead of the NFP survey, evidence has tilted towards a softer outcome. If this transpires it could spook markets further," he warned.
Federal Reserve Chair Jerome Powell is scheduled to speak later today on the economic outlook, potentially addressing the implications of the jobs report. Markets currently anticipate three Fed rate cuts for the remainder of the year.
In Asia, safe-haven currencies strengthened, with the Japanese yen reaching its strongest level against the dollar since early October, while the Swiss franc hit a three-month peak. Japan's economy minister Ryosei Akazawa announced that the nation has cleared the key threshold for the government to officially declare an end to long-term price deflation.
China's trade data released Friday showed exports slowing over January-February, while imports unexpectedly contracted, highlighting escalating trade tensions with the United States.
In cryptocurrency markets, bitcoin declined following news that President Trump signed an executive order establishing a strategic bitcoin reserve capitalized with tokens from criminal or civil asset forfeiture proceedings. According to Zann Kwan, chief investment officer of Revo Digital Family Office, the decline was likely largely because the order stated it will not require additional bitcoin purchases.