Euro extends reversal as US dollar boosted by Fed Williams

The Euro has reversed its direction on Friday’s early US session as Federal Reserve President and CEO, John Williams, cooled hopes of interest rate cuts in March. This was offset by a downbeat US NY Empire State Manufacturing Index, which fell to -14.5 its lowest level in the last 7 months.

The Euro approaches 1.0900 on weak Eurozone PMIs and a stronger US dollar, with Fed Williams’ hawkish comments giving a fresh boost to the US dollar.

Eurozone business activity data disappointed earlier on Friday, casting doubts on the European Central Bank’s (ECB) hawkish message.

December’s Preliminary HCOB Services PMI fell to 48.1 from 48.7 in November, against expectations of a moderate improvement to 49. The Manufacturing PMI remained unchanged at 44.2, when the market anticipated an improvement to 44.6. These figures suggest the weak contribution to GDP by both sectors, raising questions about the bank’s ability to keep interest rates at high levels for a long time.

Later today, the US S&P Global PMIs are expected to come in line with the idea of a soft landing for the US economy, which might add negative pressure on the US Dollar. The Euro lost pace on Friday after German and French PMI data signaled weaker-than-expected Eurozone PMI figures. The Dollar bounced higher after Fed Williams affirmed that the bank might hike rates again if needed and played down hopes of rate cuts in March.

Futures markets are pricing in a 70% chance of 25 bps cuts at the Fed’s March meeting, up from 40% before the Fed’s Wednesday meeting. The Fed signaled the end of the tightening cycle and suggested that rate cuts are coming “into view,” sending US bond yields tumbling and dragging the US Dollar down.