Another weak labor market report may have pushed the US dollar to a critical point. However, following an initial surge in the EURUSD pair, the greenback demonstrated resilience, recovering some of its losses. What was behind this sudden shift? Let’s discuss this topic and make a trading plan.
The article covers the following subjects:
Major Takeaways
- The labor market signals a downturn in the US economy.
- The US administration uses the Fed as a scapegoat.
- The central bank will cut rates in September.
- Long trades on the EURUSD pair can be opened on pullbacks with targets at 1.182 and 1.194.
Weekly US Dollar Fundamental Forecast
What we feared has come to pass. The US labor market continues to cool. In August, 22,000 new jobs were added, more than three times less than forecast. In June, employment fell into negative territory for the first time since the pandemic began. Unemployment jumped to its highest level since 2021. However, after initially soaring to its highest levels since July, the EURUSD pair started to decline. Why did bulls give up?
US Nonfarm Payrolls and Unemployment Rate
Source: Bloomberg.
In 2025, the US added just 598,000 new jobs. Excluding the pandemic period, this is the lowest number for the first eight months of the year since 2009, when the economy was hit by the financial crisis. The weakness of the labor market has been particularly pronounced since May, a month after Donald Trump imposed tariffs on Liberation Day. The average increase in non-farm payrolls in May–August was 26,800.
The US leader predictably found a scapegoat in the Fed. The US administration stated that the central bank did not lower rates in a timely manner and thus let American workers down.
Following the release of employment data, the derivatives market increased the probability of three acts of monetary expansion in 2025 from 49% to 75%. The market expects borrowing costs to drop by 150 basis points in 12 months. Bank of America, which had not previously expected rate cuts this year, suggested that there would be two cuts, in September and December, while Barclays expects not two but three rate reductions.
Market Expectations on Fed Rate Trajectory
Source: Bloomberg.
Such signals from the derivatives market, coupled with falling Treasury bond yields, should have hurt the US dollar. However, EURUSD bears have managed to recover almost half of their losses.
Fluctuations in stock indices provided them with a tailwind. While the S&P 500 index rose against expectations of a Fed rate cut in September, investors then began to worry about the US economy due to a significant cooling of the labor market. The stock market decline increased demand for the greenback as a safe-haven asset.
Not all FOMC officials are convinced of the need to return to a cycle of monetary expansion. Chicago Fed President Ostan Gulsby requires additional data, particularly on inflation. There is a risk of it accelerating in August, as this is the month when US tariffs came into force after a 90-day delay. In addition, the chances of a sharp 50 bp Fed rate cut in September have been reduced to zero, as this would mean panic within the central bank.
Weekly EURUSD Trading Plan
If we factor in the anticipated vote of no confidence in the French government on September 8, the volatile performance of the EURUSD pair begins to make sense. However, traders tend to buy the rumor. The resignation of Michel Bayrou presents an opportunity to increase long trades on the euro during the pullback, with the targets at 1.182 and 1.194.
This forecast is based on the analysis of fundamental factors, including official statements from financial institutions and regulators, various geopolitical and economic developments, and statistical data. Historical market data are also considered.
Price chart of EURUSD in real time mode
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