EUR/USD soars above 1.0900 after poor US NFP report.

EUR/USD jumps to near 1.0900 as the US Dollar plunges after a weak US NFP report for July.
US labor demand appears to have slowed significantly, with slower wage growth.
The Euro fails to capitalize on increased doubts over market expectations for two more ECB rate cuts this year.

EUR/USD climbs to near the round-level resistance of 1.0900 in Friday’s North American trading hours. The major currency pair rallies as the United States (US) Nonfarm Payrolls (NFP ) report for July showed signs of significant cracks in resilient labor market conditions. The report showed that US employers hired 114K new workers in July, lower than expectations of 175K and the former addition of 179K, downwardly revised from 206K.

The Unemployment Rate rose sharply to 4.3% from the estimates and the prior release of 4.1%. Also, slower Average Hourly Earnings growth, a key measure of wage growth that fuels consumer spending and eventually influences price pressures, has eased fears of price pressures remaining persistent. Annually, the wage growth measure decelerated to 3.6% from expectations of 3.7% and the prior reading of 3.8%, downwardly revised from 3.9%.

Weak US labor demand has weighed heavily on the US Dollar (USD) as it prompts expectations that the Federal Reserve (Fed) will begin reducing interest rates in September.. The US Dollar Index (DXY), which tracks the Greenback’s value against six major currencies, plummets to near 103.30. The outlook of the US Dollar was already downbeat due to a string of weak US economic data/

On Thursday, the US ISM Manufacturing Purchasing Managers Index (PMI) report for July showed that factory activities unexpectedly contracted at a faster pace to 46.8. Economists estimated the Manufacturing PMI to contract at a slower pace to 48.8 from June’s reading of 48.5. Also, Initial Jobless Claims for the week ending July 26 came out highest in 11 months. Individuals claiming jobless benefits for the first time were higher at 249K than estimates of 236K and the former release of 235K.

Daily digest market movers: EUR/USD strengthens as US Dollar plunges

EUR/USD jumps to near the round-level figure of 1.0900 in Friday’s New York session. The shared currency pair strengthens after downbeat US NFP data, which boosts rate-cut expectations. Meanwhile, the Fed was already leaning towards pivoting to policy normalization in September.
On Wednesday, the Fed kept interest rates unchanged in the range of 5.25%-5.50% but delivered a dovish guidance, as expected. Fed Chair Jerome Powell said, “If we were to see inflation moving down more or less in line with expectations, growth remains reasonably strong, and the labor market remains consistent with current conditions, then I think a rate cut could be on the table at the September meeting”, Reuters reported.
On the other side of the Atlantic, the Euro struggles to recover despite the hotter-than-expected Eurozone preliminary Harmonized Index of Consumer Prices (HICP) in July. The headline HICP unexpectedly rose to 2.6%, while economists expected the inflation figure to decelerate to 2.4% from June’s reading of 2.5%. The core HICP, which strips off volatile items such as food, energy, alcohol, and tobacco, grew steadily 2.9% against expectations of 2.8%.
Also, the old continent’s preliminary Gross Domestic Product (GDP) growth in the second quarter was higher than expected. The Eurozone economy expanded steadily by 0.3%, while investors anticipated a slower growth rate of 0.2%.
A scenario of stubborn inflation and steady growth is unfavorable for market expectations for interest rate cuts. Financial markets currently expect the European Central Bank (ECB) to cut its key borrowing rates two times more this year. A few ECB policymakers are comfortable with market expectations, while others refrain from committing to a specific rate-cut path.