EUR/USD falls below 1.0250 due to increased likelihood of Fed keeping rates steady

• EUR/USD depreciates as strong US labor data bolster expectations that the Fed will maintain its current interest rate levels.
• US Nonfarm Payrolls increased by 256K in December, exceeding expected 160K and November’s figure of 212K.
• Traders expect the ECB to implement four rate cuts, likely to be announced at each meeting leading up to summer.

EUR/USD remains subdued for the fifth consecutive session, holding its position around 1.0240 during the Asian trading hours. The pair faces challenges as the US Dollar (USD) strengthens following stronger-than-expected job growth in the United States (US) for December.

Data from the US Bureau of Labor Statistics (BLS), released on Friday, reported that Nonfarm Payrolls (NFP) increased by 256K in December, significantly exceeding market expectations of 160K and surpassing the revised November figure of 212K (previously reported as 227K).

Additionally, the Unemployment Rate edged down to 4.1% in December from 4.2% in November. However, annual wage inflation, measured by the change in Average Hourly Earnings, dipped slightly to 3.9% from 4% in the prior reading.

The robust US labor market data for December will likely reinforce the US Federal Reserve's (Fed) stance to keep interest rates steady in January, supporting the Greenback against other currencies. According to the CME FedWatch Tool, financial markets anticipate the Fed will maintain its benchmark overnight interest rate in the 4.25%-4.50% range during its January 28-29 meeting.

Additionally, the Euro (EUR) faces headwinds as traders anticipate four interest rate cuts by the European Central Bank (ECB), which are expected to occur at each meeting by summer. ECB policymakers appear comfortable with these dovish expectations, as inflationary pressures in the Eurozone remain largely under control.

On Wednesday, ECB policymaker and Bank of France Governor François Villeroy noted that while price pressures were projected to rise slightly in December, interest rates would continue progressing toward the neutral rate “without a slowdown in the pace by summer,” provided upcoming data confirm that the “pullback in price pressures won’t persist.”