**EUR/USD Surges After Weak US Jobs Data Sparks Fed Rate Cut Bets**
*By Christian Borjon Valencia | Source: FXStreet*
The EUR/USD pair recorded a sharp advance on Friday, driven by disappointing US employment data, which fueled speculation that the Federal Reserve might accelerate its timeline for cutting interest rates. As markets digested the latest economic numbers, the euro strengthened significantly against the US dollar, which weakened broadly across currency markets.
Investors interpreted the weaker-than-expected US jobs report as a signal that economic momentum in the United States may be waning. This development raised expectations that the Fed could respond by easing its monetary policy sooner than previously anticipated.
## Key Data Triggering Market Reaction
The US Bureau of Labor Statistics (BLS) released the July Nonfarm Payrolls (NFP) report, which came in below market expectations. Highlights of the data include:
– **Nonfarm Payrolls (NFP)**: The US economy added 187,000 jobs in July, falling short of the market consensus of 200,000.
– **Unemployment Rate**: Ticked down to 3.5 percent from June’s 3.6 percent, slightly better than expected.
– **Average Hourly Earnings**: Rose by 0.4 percent month-over-month, higher than the expected 0.3 percent, and 4.4 percent on a yearly basis, matching June’s figure.
Although wage growth remained relatively strong, the softer headline job gains appeared to weigh more heavily on market sentiment. Analysts pointed out that job growth continues to decelerate, possibly signaling the impact of prior rate hikes that may now be curbing hiring intentions among US employers.
## Market Reaction: EUR/USD Skyrockets
The EUR/USD pair surged in response to the jobs report, rising above the 1.1000 psychological level for the first time in over a month. Key factors contributing to the rally include:
– **Increased Dovish Bets on the Fed**: The release of weaker labor market data has strengthened investor expectations that the Federal Reserve may opt to pause or even reverse rate hikes to avoid further economic slowdown.
– **US Dollar Weakness**: As rate-cut bets increased, yields on US Treasury bonds declined, reducing demand for the greenback and providing tailwinds for EUR/USD.
– **Technical Breakouts**: EUR/USD pierced through several resistance levels, reinforcing upward momentum in the pair.
At the time of publication, EUR/USD was trading near daily highs, reflecting a clear bullish tone driven by macroeconomic fundamentals and broad-based USD softness.
## Fed Policy Outlook: Expectations Deepen for Cuts
Following the NFP report, market pricing for future Federal Reserve moves underwent a rapid reassessment. Using the CME FedWatch Tool, traders now see a higher probability that the Fed will:
– Keep rates unchanged at the next policy meeting.
– Begin cutting rates as early as the first quarter of next year.
– Deliver approximately 75 basis points (bps) of rate cuts by mid-2025, depending on the macroeconomic trajectory.
While the Federal Reserve had maintained a relatively hawkish message in recent weeks, emphasizing its commitment to curbing inflation, the July job numbers may prompt policymakers to revise their tone, especially if further economic indicators confirm a slowdown.
## Eurozone Data: Stable but Still Fragile
On the European side, macroeconomic indicators have been somewhat mixed but overall less extreme compared to the evolving US picture. The euro drew strength from its relative resilience and from a declining dollar. Key points in the Eurozone context include:
– **German Industrial Production**: Declined modestly but did not significantly impact market sentiment.
– **Eurozone Retail Sales**: Remained subdued, reflecting cautious consumer spending patterns.
– **ECB Policy Stance**: The European Central Bank appears increasingly cautious, with uncertainty surrounding further tightening measures. Markets are now more intent on assessing how eurozone inflation evolves in the coming months.
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