Euro Declines on Fed Rate Hike Expectations, Contradicting Eurozone’s Pandemic Low Unemployment Rate

In European trade on Monday, the euro sank versus its most important rivals, as European markets fell before the release of the US consumer inflation (CPI) data, which is likely to bolster chances for a Fed rate rise in March. The Consumer Price Index (CPI) is predicted to rise to a forty-year high of 7% in December, up from 6.8% in the prior month.

Interestingly, Eurozone economic statistics (jobless rate and Sentix investor sentiment) exceeded expectations. Nonetheless, the eurodollar fell to 1.1290 versus the US dollar, a decline from its recent peak of 1.1360. On Tuesday, Fed Chair Jerome Powell is scheduled to appear in front of the Senate Banking Committee on his candidacy for the position.

Amid mounting coronavirus infections, the eurozone jobless rate fell again in November, according to initial Eurostat data released on Monday. The seasonally adjusted unemployment rate declined to 7.2% in November, in line with predictions, from 7.3% in October. Likewise, the EU27 unemployment rate fell to 6.5%, from 6.70% a month before.

According to statistics, the count of jobless people in the EU was 13.984 million in November, with 11.829 million of them living in the Eurozone. The number of unemployed people in the EU declined by 247,000 compared with the earlier month and by 222,000 in the Eurozone.

On y-o-y basis, the overall number of unemployed people in the EU fell by 1.659 million, while it fell by 1.411 million in the Eurozone. The Eurozone’s youth unemployment rate, which pertains to individuals less than 25 years of age, decreased to 15.50% from 15.8% in the prior month. The EU’s equivalent percentage fell to 15.40% from 15.60%.

Covid infections have increased in Europe since November, but the most recent polls (for December) show that employment is still rising, according to Jack Allen-Reynolds, an analyst at Capital Economics. Continued improvements in employment may not exert that much additional pressure on salaries in the eurozone as they do in the US, since there hasn’t been a significant drop in the labor force in Europe, the economist noted.

Nonetheless, with the inferred employment level also above its pre-pandemic high, enterprises are noting that labor scarcity constitute a restraint on output, according to the economist. According to data provided by Italy’s statistics office on Monday, the unemployment rate decreased to 9.20% in November from 9.40% in October.

According to poll data released Monday by the behavioral analysis company Sentix, Eurozone investor confidence surprisingly rebounded in January after falling dramatically in December. The flagship index increased to 14.9 in January, up from 13.5 last month. Economists had predicted a lower score of 12.0.

“Regardless of new viral types and increased infection statistics, investors don’t really anticipate economic momentum to slow in 2022,” Sentix added. The survey’s present situation index improved for the initial time in almost four months, rising to 16.3, from 13.3. In the meantime, the gauge of expectations declined to 13.5, from 13.8 in December. It was the initial drop in three months.

The most recent survey was done between January 6 and 8, with participation from 1,163 investors, of which 254 were institutions. The German investor confidence index rose to 17.0 in January, up from 14.4 the earlier month. This was the initial gain in almost five months. The present condition indicator increased for the initial time in nearly five months, rising to 19, from 13.8. The index of expectations remained constant at 15.0.

The US investor confidence index fell to 23.3 in January, from 24.2 in December. For the sixth consecutive month, the current assessment gauge fell to 34, its lowest reading since April 2021. The gauge of expectations increased from 14.5 to 13.0. The investor confidence index for Asia outside Japan jumped to 21.7, the highest figure since August 2021. The present condition index increased to 20.0, while the expectations index increased for the third successive month to 23.5, the highest reading since July last year.