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10/08/26
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Dollar Slips After Weak US Jobs Data as EUR/USD Rallies
The US dollar weakened after a softer-than-expected July employment report, helping EUR/USD briefly climb to its highest level in nearly two months. The move reflected a broad reassessment of Federal Reserve policy expectations, with markets scaling back the likelihood of additional tightening in September.
US nonfarm payrolls declined by 23,000 in July, well below expectations, while previous months were revised lower by a combined 103,000. Even so, the unemployment rate edged down to 4.1% from 4.2%, and the labor force participation rate slipped to 61.4%, its weakest level since February 2021. The mixed nature of the report leaves the Fed in a difficult position, as softer job creation points to cooling labor demand, but the unemployment rate has not yet reversed higher in a sustained way.
The market reaction was immediate. US yields fell and the dollar came under pressure against other major currencies, losing ground across the G10 complex. EUR/USD touched 1.1581 before easing back, but the pair remained supported by the broader decline in US rate expectations. Futures markets now imply only around 11 basis points of tightening from the Fed at the September meeting, underscoring how quickly sentiment shifted after the labor data.
In the euro area, the Sentix investor confidence index is due and will offer an updated view of sentiment after a strong improvement in July. That was the third straight monthly gain, supported by better expectations. Later in the week, revised second-quarter euro area GDP data will provide a more detailed assessment of regional growth momentum.
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