The Euro to Dollar (EUR/USD) exchange rate stayed under pressure ahead of Friday’s New York open, hitting 7-week lows and testing support below 1.14, News.Az reports citing the Currency News.
The dollar, however, posted sharp losses after the shock US jobs data with EUR/USD rebounding strongly to above the 1.1550 level.
The jobs data triggered renewed speculation that the Federal Reserve would cut rates in September and potentially make a big cut which undermined the dollar as well as damaging confidence in the US economy.
According to the US jobs report, non-farm payrolls increased 73,000 for July compared with consensus forecasts of an increase just over 100,000. More dramatically, there was a very substantial downward revision for the June increase to 14,000 from the flash estimate of 147,000.
There was also a sharp downward revision to the May data.
The unemployment rate edged higher to 4.2% from 4.1% and in line with market expectations.
The household survey, however, also registered a sharp employment decline of over 250,000 for the month.
The data triggered a fundamental reassessment of the labour market.
Principal Asset Management chief global strategist Seema Shah commented; "Not only was this a much weaker than forecast payrolls number, the monster downward revisions to the past two months inflicts a major blow to the picture of labor market robustness.”
US yields moved lower in response and there was renewed speculation that the Federal Reserve would cut rates in September.
Shah added; “The odds of a September cut just took a big leap higher.”
Brian Jacobsen, Chief Economist at Annex Wealth Management commented; "If Powell knew then what he knows now, maybe even he would have dissented from the decision to continue the rate cut pause. There’s no way to pretty-up this report.”
He added; "History is repeating itself. Last year the Fed messed up by not cutting in July so they did a catch-up cut at their next meeting. They’ll likely have to do the same thing this year."
Inevitably, Administration pressure for early action to cut rates will intensify with Chair Powell under renewed attack.
Markets will continue to be watching trade developments closely as the US announced revised tariff rates.
MUFG commented; “according to Yale University’s Budget Lab in its latest update as of 30th July, the US consumers will now face an overall average effective tariff rate of 18.4%, the highest since 1933.”
Scotiabank remains positive on the medium-term Euro outlook; “The outlook for relative central bank policy remains a fundamental source of support for the EUR, as seen in the recovery of deeply negative German-U.S. yield spreads since late May.
It added; “This week’s pullback looks to have been driven by sentiment and positioning, rather than fundamentals, and we look to renewed medium-term EUR gains.”
