Euro May Gain Further Ground on Short Squeeze

The US dollar strengthened against most of its main competitors on Friday after the Labor Department reported that US employment rose far more than predicted in January. The US dollar strengthened against most of its main competitors on Friday after Labor Department statistics indicated that US employment rose far more than anticipated in January.

Nevertheless, per some analysts, the European Central Bank’s (ECB) February monetary policy stance looked to initiate an extended’ short squeeze’ in EUR/USD, which might cause rival currencies to climb against the greenback in the coming weeks. Against the Euro, the dollar strengthened to $1.1413, but then dropped during the day, ending Friday at $1.1450.

Dollars were extensively dumped while the majority of other top traded currencies were purchased, with the Eurodollar, Zloty (Poland), Krone (Norway) and Swedish Krona seeing the highest gains following President Christine Lagarde’s warning of upside threats to the ECB’s inflation forecast.

The unexpected increase in job creation in the United States has increased the likelihood of the Federal Reserve raising interest rates further next month. The Labor Department said that employment increased by 467,000 jobs in January, above economists’ expectations of a 150,000-job growth. Additionally, the data indicated that the rise in employment in December was increased higher to 510,000 jobs from 199,000 earlier reported. Nevertheless, the Labor Department reported that the jobless rate increased to 4% in January, up from 3.9% in December. Economists anticipated that the unemployment rate would remain steady.

Treasury rates increased in response to the data, with the benchmark 10-year note yield increasing by 1.89 percent. The dollar index, which plummeted to a two-week low of 95.14 on Thursday, rose to 95.70 on the release of the employment report, and despite further losses, is slightly above the unchanged line at 95.46. In the wake of Thursday’s release of Eurozone inflation numbers, the Euro-Dollar exchange rate rose significantly to the positive side, surprising experts and contradicting the ECB’s assumption that inflationary pressures would peak at the beginning of 2022.

Lagarde refused to confirm the market’s anticipation that the ECB would hike interest rates near the end of 2022, but said on Thursday that last month’s statistics indicate that Eurozone inflation may be robust for a longer time than previously predicted. Due to the ECB’s assessment that Eurozone inflation will not demand an adjustment in interest rates to bring them back to the bank’s harmonized 2 percent aim, the Euro was one of the most actively dumped major currencies in 2021.

While some experts are already revising their expectations for a September 2022 rate rise in light of the ECB inflation forecast, this could serve as a catalyst for a new round of market pressure on market participants who had been speculating against the Euro dollar for most of the six months leading up to the 2022 new year.