Original article by James Skinner
Source: https://www.exchangerates.org.uk/news/43968/2025-09-05-pound-to-dollar-and-euro-jump-on-shock-us-jobs-data.html
Title: Sterling Surges Against Dollar and Euro Following Unexpected U.S. Jobs Report
The British pound registered strong gains against both the U.S. dollar and the euro on Thursday, spurred by the release of significantly weaker-than-expected U.S. employment data. With traders quickly recalibrating their interest rate expectations in the wake of the jobs figures, Sterling was among the main beneficiaries as investors moved away from the dollar and reevaluated the broader global outlook for monetary policy.
Weaker U.S. Jobs Report Sparks Market Reaction
The latest U.S. non-farm payrolls (NFP) report shocked economists and investors alike. Released by the U.S. Bureau of Labor Statistics, the data showed a substantial shortfall in new job creation with only 107,000 jobs added in August, falling well short of the 170,000 market forecast.
Additional data included in the report revealed a slight uptick in the unemployment rate, moving from 3.5 percent in July to 3.7 percent, while wage growth also slowed. These indicators pointed to a softening labor market, prompting traders to reassess the likelihood of further U.S. Federal Reserve rate hikes.
Key points from the U.S. jobs report:
– Only 107,000 jobs were added versus the forecast of 170,000
– Unemployment rate rose from 3.5 percent to 3.7 percent
– Average hourly earnings increased by just 0.1 percent month-on-month
– Labor force participation remained broadly steady at 62.7 percent
The immediate market interpretation of the report led to a broad selloff in the dollar as expectations for monetary tightening from the Federal Reserve were scaled back. Investors concluded that the Fed may now be less likely to raise interest rates further in 2025, especially considering other recent softer economic data.
Pound Rallies in Response
The British pound climbed sharply in response to the jobs report, with GBP/USD rising to 1.2920 from intraday lows of 1.2750. This notable appreciation reflected both a shift in sentiment away from the dollar and increased confidence in the outlook for the UK economy and monetary policy.
There has been a sense among investors that the Bank of England (BoE) may need to hold interest rates higher for longer than the Fed if inflation pressures persist in the UK. While recent UK inflation figures have started to soften, core inflation remains elevated compared to other developed economies.
Market participants observed that:
– Sterling gained over 1.3 percent against the dollar on Thursday
– GBP/EUR also firmed, climbing to 1.1710 amid renewed euro weakness
– Reduced focus on UK recession risks further supported the pound
Interest rate differentials between the UK and U.S. thus became a strong driver of pound strength, especially as U.S. yields fell in tandem with the weaker employment data.
Euro Weighed Down by Dovish ECB Outlook
In contrast to the strengthening pound, the euro struggled to hold gains against currencies such as the pound and yen despite the dollar weakness. Even with the EUR/USD exchange rate reversing earlier declines and rising to 1.0870, the single currency has faced growing headwinds as the European Central Bank (ECB) signals caution in further raising interest rates.
Several ECB policymakers have recently acknowledged the increasing downside risks to the eurozone economy, particularly in light of weak manufacturing activity and stagnating consumer spending in core countries like Germany.
Key economic themes impacting the euro include:
– Core inflation is easing more quickly in Europe than in the UK or U.S.
– ECB rate expectations have fallen amid fragile growth forecasts
– Business confidence remains muted, especially in the services
Read more on EUR/USD trading.