EUR/USD fell below the 10-day moving average on Friday after an above-forecast U.S. non-farm payrolls report nW1N2XQ004, but the move lower lacked significant momentum as investors seem more focused on inflation, which may present upside risks for the euro.
Month-on-month May average hourly earnings were below estimates USAVGE=ECI while year-on-year met estimates USAVHE=ECI, but both appear to be trending downward, which should alleviate some inflation concerns and potentially temper Fed policy expectations.
In contrast, concerns about elevated euro zone inflation are growing, with euro zone 5-year/5-year inflation linked swaps EUIL5YF5Y=R hitting two-week highs after bottoming on May 25.
Euribor futures and German yields reinforce inflation concerns as December Euribor prices FEIZ3 hit record lows as investors expect a higher terminal ECB rate while German bund yields DE10YT=RR struck an eight-year high.
The ECB meets June 9 and may have to take a more hawkish stance and U.S. May CPI USCPF=ECI is due June 10.
A downbeat CPI should see U.S. rates and the dollar fall.
For now EUR/USD seems unlikely to give back much of the gains off the May monthly low.
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