Euro surges as US unemployment claims rise sharply

• US jobless claims jump to 261,000
• Eurozone GDP posts back-to-back quarterly declines
• EUR/USD climbs sharply

The euro has posted strong gains on Thursday. In the North American session, EUR/USD is trading at 1.0777, up 0.74% on the day.

US jobless claims send US dollar lower

The currency markets were relatively quiet in the Asian and European sessions, but the US dollar has retreated against the major currencies in North American trade. The driver behind the greenback’s downturn was a jump in US initial unemployment claims. Last week’s reading rose to 261,000, up from 233,000 and above the consensus of 235,000. This marked the highest level since October 2021.

Traders and investors shouldn’t assume too much from one reading, as weekly releases tend to fluctuate from week to week, especially around the holiday season (last week was Memorial Day). Continuing unemployment claims, which are considered a better gauge of the job market, actually fell to their lowest level in February.

Today’s jump in jobless claims may not have been all that significant but it marked another negative signal after the jump in the unemployment rate in May and that has the markets worried that the labor market may be cooling down, which could allow the Fed to ease up on rate policy.

In Europe, the news wasn’t good, as the eurozone GDP contracted in the first quarter by 0.1% q/q, a repeat of GDP in Q4 2022 and below the consensus of 0%. Technically, two consecutive quarters of negative growth signify a recession, but the decline is so slight that “stagnation” seems a more appropriate description of eurozone growth. On an annualized basis, Q1 growth slowed to 1%, down from the 1.2% consensus and well off the Q4 2022 reading of 1.8%.

The ECB isn’t terribly distressed by the soft GDP report as it needs the economy to cool before it can pause from more rate hikes. Inflation has fallen sharply in the eurozone, from a peak of 10.6% last year to 6.1% in May. This has fuelled speculation that the ECB could be near the end of its rate-hike cycle, but ECB President Lagarde has dampened these expectations, saying that there is no clear evidence that core inflation has peaked. The markets are expecting a 25-basis point hike at the June 15^th meeting.

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EUR/USD Technical

• EUR/USD is testing resistance at 1.0780. Above, there is resistance at 1.0851
• 1.0707 and 1.0636 are providing support

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stagnation