Title: Euro to Dollar Outlook: US Jobs Shock Reverses Dollar Dominance
Author Credit: Based on an article by James Skinner, originally published on PoundSterlingLive.com
The Euro to US Dollar (EUR/USD) exchange rate is entering a period of renewed volatility following an unexpected turn in the most recent US employment data. The weekly outlook for the EUR/USD pair has shifted significantly after a much weaker-than-expected US Non-Farm Payrolls (NFP) report on Friday, which signaled potential softening in the labor market and upended the bullish trend in the US Dollar.
In the week ahead, traders and investors will be watching closely for signals from the Federal Reserve, upcoming inflation data, and any geopolitical developments that could influence the macroeconomic outlook and monetary policy paths in both the Eurozone and the United States.
Overview of Recent EUR/USD Performance
The Euro was under pressure for most of last week but staged a dramatic recovery on Friday following the release of disappointing US employment figures. For much of the previous weeks, the US Dollar had been buoyed by solid data indicating a strong economy, resilience in consumer spending, and rising inflation—a combination that encouraged the market to dial back expectations for Federal Reserve interest rate cuts.
However, the tide turned when the June US employment report showed:
– A weaker-than-expected increase in non-farm payrolls
– An upward revision to the unemployment rate, which rose from 4.0% to 4.1%
– Hiring gains cooling significantly, with only 206,000 jobs added compared to expectations of 191,000, though previous months were revised down by a net 111,000
– Average hourly earnings rising at a slower pace of 0.3%, down from 0.4% the previous month
This combination of data suggests the labor market may be cooling faster than expected. As a result, traders reacted swiftly, increasing speculative bets that the Federal Reserve might cut interest rates as early as September. Consequently, the US Dollar weakened across the board, allowing the Euro to stage a robust late-week comeback.
EUR/USD Rebounds after US Jobs Report
EUR/USD had been trending lower for much of the week, briefly slipping below the 1.0800 handle amid renewed US Dollar strength. However, following the jobs report, the pair surged back above 1.0830 as the Dollar retreated.
The shift in expectations is evident in market pricing:
– Federal Funds Futures now suggest roughly a 78% probability of a rate cut by the Fed in September
– Just a week ago, that probability was under 65%, highlighting how dramatically sentiment has shifted following the employment report
– The yield on 2-year Treasury notes, which are particularly sensitive to interest rate expectations, fell sharply in response to the data, reinforcing the view that investors now expect monetary easing from the Fed sooner than previously thought
According to analysts at Commerzbank, “As the market now prices in a higher probability of a Fed rate cut in September, this has taken the pressure off the EUR/USD, allowing it to recover.”
The dollar’s retreat at the end of last week suggests that confidence in its recent rally has been shaken. What may follow in the coming days is a period of consolidation for the EUR/USD, with direction largely dependent on forthcoming data.
Key Risks and Events for the Week Ahead
Several key data releases and events this week are likely to influence the direction of the EUR/USD pair:
1. US Inflation (CPI) – Thursday
– The most closely watched event of the week will be the June Consumer Price Index (CPI) report due on Thursday.
– Headline inflation is expected to remain flat for the month, which would translate to an annual inflation rate of 3.1%, down from 3.3% in May.
– Core inflation, which excludes volatile food and energy prices, is forecast to rise by 0.2% month-on-month and
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