EUR/USD Holds 1.1650 as Markets Brace for Nonfarm Payrolls—What's Next?

EUR/USD is trading near 1.1650 as traders take a cautious stance ahead of the US Nonfarm Payrolls report. After declining for five consecutive days, the pair is caught between a strengthening US Dollar and steady interest rate expectations from the ECB, creating uncertainty about where the momentum will shift.

US Labor Data Signals Dollar Strength

The US Dollar is gaining ground following recent weekly labor market releases. Initial Jobless Claims came in at 208,000 for the week ended January 3—slightly below expectations of 210,000 but higher than the prior week’s 200,000. More notably, continuing jobless claims surged to 1.914 million from 1.858 million, suggesting that more people are staying on unemployment benefits longer. This gradual deterioration in the labor market backdrop is fueling USD strength despite expectations that December’s Nonfarm Payrolls will show only 60,000 job additions, down from November’s 64,000.

ECB’s Steady Hand Supports EUR

Meanwhile, the Eurozone is sending mixed signals. The European Commission’s Business Climate Index ticked up to -0.56 in December from -0.66, hinting at modest stabilization in business conditions. Consumer confidence also improved to -13.1 from -14.6. However, Producer Prices accelerated more than expected, rising 0.5% month-over-month in November against forecasts of 0.2%—though year-over-year producer prices remain in contraction at -1.7%.

The European Central Bank (ECB) continues to hold its ground. Vice President Luis de Guindos confirmed that current interest rates are “appropriate,” with inflation now at target. More crucially, the ECB’s latest consumer inflation expectations survey reveals that 1-year, 3-year, and 5-year inflation expectations are locked in at 2.8%, 2.5%, and 2.2% respectively—unchanged from previous readings. This stability in expectations bolsters the case for keeping rates on hold at 2.00%, according to BBH FX analysts. The Eurozone unemployment rate edged down to 6.3% in November from 6.4%, providing additional support.

The Key Divergence: Dollar Momentum vs. Rate Stability

EUR/USD’s narrow trading range reflects this crosscurrent. The US Dollar is tightening due to labor market softness that could influence Federal Reserve policy, while the ECB’s inflation expectations remain anchored, reducing pressure for immediate rate adjustments. The Nonfarm Payrolls print will be critical in determining which force dominates next.