The euro pared daily gains against the US dollar on Wednesday, after a report by ADP showed US companies boosted non-farm payrolls in March by the most in three months, indicating the labor market is gaining traction after the harsh winter.
EUR/USD hit a session high at 1.3820 at 06:30 GMT, after which the pair trimmed gains to trade little changed at 1.3784 by 13:15 GMT, losing 0.06% for the day. Support was likely to be received at April 1st low, 1.3769, while resistance was to be met at March 26th high, 1.3823.
Greenbacks demand was heightened as it became clear that the US private sector added 191 000 workers last month after Februarys number was revised up by 39 000 to 178 000, a report by Automatic Data Processing Inc. (ADP), showed today. However, analysts forecasts called for a 195 000 gain in March.
“We’re starting to see the recovery in the data that we’ve been hoping for,” Brett Ryan, an economist with Deutsche Bank Securities Inc. in New York, commented ahead of the report, cited by Bloomberg. “This is going to provide policy makers and market participants alike a modicum of confidence that the data swoon over the last couple months is weather-related and not a sign of something more ominous.”
The ADP report usually comes out two days before the official employment report by the Bureau of Labor Statistics (BLS), thus, providing clues over the tendency in nation’s non-farming sector. The government report scheduled to be released on Friday may show private payrolls rose by 200 000 last month, according to the median experts forecast.
Meanwhile, European Central Bank Vice President Vitor Constancio commented yesterday that the euro area will probably avoid deflation as the economic recovery is gaining momentum.
“If indeed the recovery consolidates, it means that the slack in the recovery is reduced, and that will help on that score,” Constancio said at a press conference in Athens yesterday, cited by Bloomberg. “We expect the low figure in March will be corrected to a high figure in April, we see no deflation prospects, that this regime of low inflation could lead to real deflation. We don’t expect that at all.”
At the same time, he underlined that the recovery remains fragile as there are threats from external shocks and the euro area may continue to experience weak price pressure for a prolonged period of time.
Although recent data added to evidence that the economy is gaining momentum, the common currency has risen more than 7% against the US dollar in the past year and inflation bottomed at the weakest level in four years last month, underlining the risks to the outlook.
Constancios comments come after data showed on Monday the euro zone’s preliminary annualized index of consumer prices, evaluated in accordance with Eurostat’s harmonized methodology, slowed down to 0.5% in March from 0.7% in February, trailing analysts’ forecasts for a smaller decline to 0.6%. March’s inflation rate is the weakest since October 2009 and marked a sixth straight reading below 1%, remaining quite far from European Central Bank’s inflation target of just under 2%.
The weak price pressure in the 18-nation common-currency bloc may prompt the ECB to introduce additional measures at its upcoming policy meeting tomorrow. At its last policy meeting, on March 6th, the ECB officials maintained the main interest rate at a record-low 0.25%.
The central bank forecast an inflation rate of 1% in 2014 and 1.3% next year, well below its target of 2%, which is used as a benchmark for price stability in the medium term.
Last week, ECB President Mario Draghi reiterated that he will “take additional monetary policy measures” if “any downside risks” appear to its forecast for a “gradual closing of the output gap in the coming years.” The risks include weak price pressure and a stronger euro, he added.
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