**EUR/USD Surges as Weak US Jobs Data Boosts Fed Rate Cut Expectations**
*Adapted from an article originally published by FXStreet’s Cristian Gamarra*
The euro experienced a sharp rise against the U.S. dollar on Friday, August 2, 2024, following the release of disappointing U.S. labor market data. The EUR/USD currency pair spiked after the Nonfarm Payrolls (NFP) report missed expectations, fueling widespread speculation that the Federal Reserve could move to cut interest rates as soon as September.
Investors interpreted the weak jobs figures as a sign that the U.S. economy might be decelerating, prompting a realignment of expectations for future monetary policy from the Federal Reserve. This development triggered a broad sell-off in the greenback while safe-haven and risk-friendly assets alike reacted positively to the boost in liquidity prospects.
Here is a detailed breakdown of the key market developments and deeper context behind this significant move in the EUR/USD exchange rate.
## U.S. Job Data Disappoints Market Expectations
Friday’s U.S. Nonfarm Payrolls report published by the Bureau of Labor Statistics revealed the following:
– Job creation for July amounted to 187,000 new positions, falling short of the consensus estimate of 200,000 jobs.
– The figure for June was revised lower, dropping from an initially reported 206,000 to 188,000.
– The unemployment rate ticked up from 4.0% to 4.1%, a sign that slack remains in the labor market.
– Average hourly earnings, a key inflation-proxy metric, rose by only 0.2% month-on-month versus expectations of a 0.3% increase.
In response to this data, market participants adjusted their expectations. The weakening labor market is seen as a clear indication that previous rate hikes by the Federal Reserve are beginning to dampen economic activity. This has led analysts to forecast a potential pivot by the Fed in the coming months.
## Federal Reserve Outlook Shifts Toward Easing
Prior to the release of the July labor report, the Federal Reserve had signaled a data-dependent approach to future rate moves. While inflation had begun to moderate in recent months, policymakers remained cautious about cutting rates too soon, wanting to see persistent signs of softening demand alongside price stability.
However, with wage growth softening and the unemployment rate ticking higher, markets are now pricing in increased odds of a rate cut as early as the September Federal Open Market Committee (FOMC) meeting. Following the labor data release:
– Fed Funds Futures indicated a 58% probability of a 25-basis-point cut in September, up from 42% one day prior.
– Year-end projections now suggest that markets expect two rate cuts by December 2024.
– Benchmark U.S. Treasury yields fell sharply, with the 2-year yield retreating to around 4.32%, signaling anticipation of looser monetary policy.
Fed Chair Jerome Powell has previously argued that the labor market needed to show broader and more persistent signs of cooling before rate cuts could be considered. Friday’s data may fulfill that condition, offering a concrete reason for the Fed to initiate a policy reversal sooner than previously expected.
## EUR/USD Sparks a Rally Above Key Resistance
The euro emerged as one of the biggest beneficiaries of this latest U.S. data release. Traders reacted quickly to what is now interpreted as increased risk of dollar weakness in the medium term. The EUR/USD pair catapulted higher following the Nonfarm Payrolls print, climbing above a key technical resistance level.
Key technical developments include:
– EUR/USD surged past the 1.0930 resistance region, breaking out of a consolidation pattern that had prevailed for much of July.
– The pair reached an intraday high of approximately 1.0985, marking a three-week high.
– Momentum indicators, including the Relative Strength Index (RSI), turned bullish on the daily chart.
– The next
Explore this further here: USD/JPY trading.