Euro: Weak US jobs lift EUR against US Dollar on Fed repricing – Danske Bank

Danske Research Team notes that the US Dollar (USD) weakened after a softer US jobs report, allowing EUR/USD to briefly reach its highest level in almost two months. They highlight that markets cut Federal Reserve (Fed) tightening expectations for September, while also flagging upcoming United States (US) inflation data and Euro area Gross Domestic Product (GDP) as key for EUR/USD traders.

Dollar slides as Fed bets fade

"In the US, the July jobs report came in on the weak side with nonfarm payrolls coming in at -23k (cons: +80k, Danske: +70k) and cumulative revisions for May-June firmly negative at -103k. The unemployment rate nonetheless fell to 4.1% (cons: 4.2%, Danske: 4.2%). At the same time, the labour market participation rate declined to 61.4%, which is the weakest level since February 2021. "

"We do not think this report is as unambiguously dovish as the initial moves in UST yields and USD FX implied, leaving the Fed in a difficult position balancing below-expectations job growth against a still-declining unemployment rate. Fed's Barkin's initial commentary acknowledged the weakness in the labour market data, while pointing to continued resilient corporate earnings."

"Consequently, the market now discounts 11bp of hike from the Federal Reserve at the next meeting in September."

"The USD took a hit on Friday and the US jobs report significantly disappointed expectations. The USD lost ground against the rest of G10 currencies. EUR/USD rose briefly to 1.1581 - the highest level in almost two months."

"In the euro area, the Sentix Investor Confidence indicator is due. The index rose sharply in in July, marking the third consecutive monthly improvement, driven by rising expectations. Today's release will provide a read on whether momentum continues."

"The week closes on Friday with the second release of euro area Q2 GDP, including details. "

(This article was created with the help of an Artificial Intelligence tool and reviewed by an editor. Know more.)