**EUR/USD Surges as Weak US Jobs Data Powers Rate Cut Expectations**
*Adapted and expanded from an article originally written by Matías Salord on FXStreet.*
The euro witnessed a sharp upward rally against the US dollar on Friday, August 2, following a weaker-than-expected US Nonfarm Payrolls (NFP) report. The subdued jobs data reinforced speculation that the Federal Reserve may soon pivot toward interest rate cuts, boosting the appeal of the euro over the greenback.
EUR/USD climbed above the 1.0900 level, touching its highest point in several weeks, as the US jobs report disappointed expectations and fueled market bets for imminent monetary easing by the Federal Reserve. The combination of slowing job creation and a higher unemployment rate supported dovish sentiment in financial markets.
This article elaborates on the key factors behind the EUR/USD rally, breaks down the details of the latest US labor market data, and explores the growing likelihood of a shift in Fed policy. Additionally, it examines potential implications for currency traders and includes technical analysis of EUR/USD movements and short-term projections.
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**US Nonfarm Payrolls Report Misses Expectations**
On Friday morning, the US Bureau of Labor Statistics (BLS) released its monthly employment report showing signs of weakness in the labor market.
Key highlights from the report include:
– **Nonfarm Payrolls**: The US economy added 187,000 jobs in July, falling short of the anticipated 200,000.
– **Previous Revisions**: The data for June was revised downward to 185,000 from a previously reported 209,000 jobs.
– **Unemployment Rate**: Rose slightly to 3.6 percent from 3.5 percent, reflecting a modest deterioration in labor market conditions.
– **Average Hourly Earnings**: Increased by 0.3 percent month-over-month, as expected, but yearly wage growth slowed to 4.2 percent, missing forecasts of 4.4 percent.
The soft payroll numbers pointed to cooling dynamics in the labor market, suggesting that the Federal Reserve’s aggressive tightening campaign may be achieving its broader goal of reducing economic overheating.
Although job creation continues, the slower pace—combined with revisions that reduced prior months’ figures—gave investors more confidence that the Fed may not need to maintain its restrictive stance.
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**Market Response: EUR/USD Soars on Lower Fed Rate Prospects**
Market participants instantly interpreted the slowdown in job growth and the rise in the unemployment rate as factors likely to push the Fed toward easing monetary policy. As a result, yield differentials between Europe and the US narrowed, favoring the euro.
Within hours after the NFP release, EUR/USD surged by over 100 pips, easily breaching the 1.0900 resistance level. The euro bulls were emboldened by dovish expectations, as futures markets began to price in higher odds of interest rate cuts by early 2025.
This rapid shift in sentiment caused the US dollar to weaken sharply across the board, not only against the euro, but also against other major currencies like the Japanese yen and British pound.
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**Fed Rate Cut Hypotheses Grow Stronger**
Traders have become increasingly convinced that the Federal Reserve is nearing the end of its rate hike cycle. Even though the Fed raised interest rates in July, bringing the federal funds rate to a target range of 5.25 to 5.50 percent, weak economic data are now casting doubt on the likelihood of further tightening.
Following the release of the jobs report, CME Group’s FedWatch Tool showed that:
– **Market-implied odds of a rate cut by March 2025 climbed above 70 percent.**
– **Expectations for another rate hike in 2024 fell drastically, with forward rates suggesting that the current cycle may be over.**
The Federal Open Market Committee (FOMC) will likely emphasize its data-dependent approach going forward. Signs of cooling in both labor and inflation metrics will
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