**EUR/USD Surges on Weak U.S. Jobs Data, Fueling Market Bets for Fed Rate Cuts**
*By Christian Borjon Valencia, FXStreet*
The EUR/USD pair witnessed a sharp surge on Friday, driven by softer-than-expected U.S. Nonfarm Payrolls (NFP) data for July that intensified expectations for upcoming interest rate cuts by the Federal Reserve. The dollar weakened significantly following the release, while Treasury yields dropped as investors adjusted their rate outlooks in reaction to slowing labor market momentum in the United States.
By the end of the US trading session, the EUR/USD was trading near 1.2215, its highest level since early April, logging a substantial gain of over 140 pips from the day’s open.
## Key Developments Behind the EUR/USD Rally
The strong upward movement in EUR/USD was fueled by multiple factors, all pointing toward increased market belief that the Federal Reserve may be inching closer to initiating rate cuts soon. Below are the key contributors to Friday’s surge:
### 1. Soft U.S. Nonfarm Payrolls Data
The U.S. Bureau of Labor Statistics reported that:
– The U.S. economy added 185,000 jobs in July, missing expectations of 200,000.
– June’s figure was revised downward from 206,000 to 182,000.
– The unemployment rate rose marginally to 4.1 percent from 4.0 percent, its highest level since November 2021.
– Average hourly earnings grew by just 0.3 percent month-over-month, in line with forecasts but slightly lower than June’s growth of 0.4 percent.
– The year-over-year wage increase stood at 3.9 percent, down from June’s reading of 4.1 percent.
These figures signal continued cooling in the labor market, which Fed Chair Jerome Powell previously emphasized as a necessary condition for any dovish policy pivot. A weakening job market has reinforced the possibility that inflationary pressures may further ease without the labor-driven wage growth spiraling upward.
### 2. Immediate Market Reaction
Financial markets swiftly reacted to the jobs data release:
– The U.S. Dollar Index (DXY), which tracks the greenback against a basket of six major currencies, dropped from near 105.20 to around 103.65 by midday US trading.
– The 10-year U.S. Treasury yield slid 11 basis points to sit around 4.08 percent, reflecting growing investor demand for bonds which traditionally occurs when rate cut expectations grow.
– CME Group’s FedWatch Tool showed an increased probability of a rate cut at the Federal Reserve’s September meeting, rising from around 15 percent before the NFP data to 38 percent immediately after.
The considerable shift in Fed expectations placed strong downward pressure on the U.S. dollar and created ideal conditions for a bullish breakout in EUR/USD.
### 3. Eurozone Data and Monetary Policy Outlook
While most of Friday’s movement was driven by U.S. developments, traders also evaluated the latest data out of the Eurozone:
– Eurozone Services PMI was confirmed at 51.5 in July, indicating modest sector expansion.
– Retail Sales in the Euro Area beat forecasts, rising 0.4 percent month-over-month in June.
– Comments from European Central Bank (ECB) officials throughout the week suggested that the ECB will continue to approach monetary policy with caution but may not be in a hurry to cut rates as inflation remains above its 2 percent target.
These factors have helped the euro maintain relative strength, further bolstering the EUR/USD pair’s rally.
## Technical Analysis: EUR/USD Eyes 1.2300 Following Breakout
The rally in EUR/USD was reinforced by a technical breakout above previous resistance, propelling the pair toward fresh multi-month highs. The pair broke cleanly above its July highs located near the 1.2130-1.2150 zone, which had acted as a stubborn
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