EUR/USD tops 1.1750 as soft US jobs cement Fed cut bets
- EUR/USD trades above 1.1750 after the US economy added just 22K jobs in August, the Unemployment Rate rises.
- Markets fully price 25 bps September Fed cut, with slim 12% chance for larger 50 bps move.
- The Euro is supported by the US Dollar retreat, though the French PM ouster and the upcoming ECB meeting may cap further upside.
The EUR/USD pair post back-to-back bullish days, rising over 0.37% on Monday as traders grow confident that monetary policy in the United States (US) will resume its easing cycle after the Federal Reserve (Fed) Chair Jerome Powell acknowledged the weakness of the labor market. A soft jobs report pushed the pair past the 1.1700 figure, though it remains shy of the yearly peak of 1.1829.
Euro gains as Dollar weakens on NFP miss, French political turmoil adds uncertainty to outlook
Last Friday’s Nonfarm Payrolls report reassured investors that the labor market in the largest economy in the world is undergoing an economic slowdown, yet to be reflected in Gross Domestic Product (GDP) data. In August, the economy added 22K jobs, below forecasts of 75K, while the Unemployment Rate ticked up from 4.2% to 4.3%.
The data cemented the case for the Federal Reserve’s first rate cut in 2025. Market players had fully priced in a 0.25% cut, but odds for a 0.50% rate reduction stand at a slim 12% chance.
During the last couple of trading days, the US Dollar retreated almost 0.80% as traders await the Fed’s September 16-17 meeting. This has been a tailwind for Euro bulls, who also need to address the political turmoil in France.
Recently, the Prime Minister François Bayrou was ousted after losing the confidence vote. French President Macron is expected to name a new PM in the upcoming days, with speculations mounting that it would be named after the September 10 strikes.
Ahead in the week, the docket on both sides of the Atlantic could ignite some volatility. In the US, inflation figures on the producer and consumer side could spark some action in the EUR/USD pair. On Thursday, the European Central Bank (ECB) is expected to keep rates in check.
Daily digest market movers: EUR/USD climbs above 1.1750 post NFP report
- The EUR/USD direction is directly linked to the US inflation report. The Producer Price Index (PPI) is released on Wednesday, and the Consumer Price Index (CPI) on Thursday. PPI is expected to hold steady at 3.3% YoY, while Core PPI is seen easing to 3.5% from 3.7%.
- CPI is projected to accelerate slightly, rising to 2.9% YoY from 2.7%, whereas Core CPI—which strips out food and energy—is anticipated to remain unchanged at 3.1%.
- In response, futures tied to the December 2025 Fed funds contract priced in nearly 69 basis points of easing by year-end.
- Investor sentiment in the Eurozone (EZ) slumped in September, revealed the Sentix investor confidence survey. The index fell from -3.7 to -9.2% in August. Sentix blamed the political instability in France, weakness in German industry, an “unfavorable” trade deal with the US and the conflict between Russia and Ukraine.
- Expectations that the Fed will reduce rates at the September meeting continued to trend higher. The Prime Market Terminal interest rate probability tool had priced in a 88% chance of the Fed easing policy by 25 basis points (bps) and a 12% chance for a 50-bps cut. The ECB is likely to keep rates unchanged, with a 89% probability, and only a 11% chance of a 25-bps cut.
Technical outlook: EUR/USD poised to challenge 1.1800 in the near term
The EUR/USD uptrend extended with buyers gathering steam. From a momentum standpoint, bulls are in charge as depicted by the Relative Strength Index (RSI).
With that said, the EUR/USD upside is seen to continue. The next resistance would be July 24, 1.1788, ahead of 1.1800. A breach of the latter will expose the year-to-date peak at 1.1829. Conversely, a daily close beneath 1.1700 can set the tone to challenge the 20-day Simple Moving Average (SMA) at 1.1675 ahead of the 50-day SMA at 1.1660.
Euro FAQs
The Euro is the currency for the 19 European Union countries that belong to the Eurozone. It is the second most heavily traded currency in the world behind the US Dollar. In 2022, it accounted for 31% of all foreign exchange transactions, with an average daily turnover of over $2.2 trillion a day. EUR/USD is the most heavily traded currency pair in the world, accounting for an estimated 30% off all transactions, followed by EUR/JPY (4%), EUR/GBP (3%) and EUR/AUD (2%).
The European Central Bank (ECB) in Frankfurt, Germany, is the reserve bank for the Eurozone. The ECB sets interest rates and manages monetary policy. The ECB’s primary mandate is to maintain price stability, which means either controlling inflation or stimulating growth. Its primary tool is the raising or lowering of interest rates. Relatively high interest rates – or the expectation of higher rates – will usually benefit the Euro and vice versa. The ECB Governing Council makes monetary policy decisions at meetings held eight times a year. Decisions are made by heads of the Eurozone national banks and six permanent members, including the President of the ECB, Christine Lagarde.
Eurozone inflation data, measured by the Harmonized Index of Consumer Prices (HICP), is an important econometric for the Euro. If inflation rises more than expected, especially if above the ECB’s 2% target, it obliges the ECB to raise interest rates to bring it back under control. Relatively high interest rates compared to its counterparts will usually benefit the Euro, as it makes the region more attractive as a place for global investors to park their money.
Data releases gauge the health of the economy and can impact on the Euro. Indicators such as GDP, Manufacturing and Services PMIs, employment, and consumer sentiment surveys can all influence the direction of the single currency. A strong economy is good for the Euro. Not only does it attract more foreign investment but it may encourage the ECB to put up interest rates, which will directly strengthen the Euro. Otherwise, if economic data is weak, the Euro is likely to fall. Economic data for the four largest economies in the euro area (Germany, France, Italy and Spain) are especially significant, as they account for 75% of the Eurozone’s economy.
Another significant data release for the Euro is the Trade Balance. This indicator measures the difference between what a country earns from its exports and what it spends on imports over a given period. If a country produces highly sought after exports then its currency will gain in value purely from the extra demand created from foreign buyers seeking to purchase these goods. Therefore, a positive net Trade Balance strengthens a currency and vice versa for a negative balance.
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