Dollar fell sharply Friday after a dismal July jobs report cast doubt on the resilience of the labor market. While the headline job growth missed expectations, the bigger blow came from a stunning downward revision to June’s figure. The data raised alarm bells that the U.S. labor market may be losing momentum far quicker than previously thought.
Adding to the pressure was a coordinated release by Fed Governors Waller and Bowman, both of whom dissented at this week’s FOMC meeting in favor of a rate cut. Their remarks, published just before the payrolls release, emphasized the risks of delayed action in the face of labor market weakness. Waller argued for a proactive path, while Bowman called the July cut a necessary step toward neutralizing policy. While perhaps coincidental, the synchronized release raised eyebrows and intensified market concerns.
The combined impact of soft jobs data and dovish Fed messaging sent the Dollar lower across the board. Though the greenback still clings to the top spot among major currencies for the week, its lead is looking fragile. If selling persists into the weekend, Dollar could lose its weekly crown. Loonie holds second place, followed by Yen. On the other end, Euro remains the weakest, trailed by Kiwi and Swiss Franc. Sterling and Aussie are middle-of-the-pack. But with volatility likely to persist, rankings could shift before the week closes.
Meanwhile, equity markets in Europe and US are trading lower, showing a sharper reaction than Asia to US President Donald Trump’s newly announced tariff regime. The latest executive order establishes “reciprocal” duties ranging from 10% to 41%, with a 40% penalty on goods transshipped to dodge tariffs. All unlisted countries face a blanket 10% duty. The new rules will take effect August 7.
Canada is among the hardest hit with a 35% tariff, although items covered under the USMCA are exempt. Prime Minister Mark Carney expressed disappointment and rejected Trump’s justification that tariffs were linked to drug trafficking. Switzerland faces a steep 39% duty despite what its government called “constructive” talks with Washington. The Swiss federal council expressed “regret” and signaled it would evaluate its options while continuing diplomatic engagement.
By contrast, Australia escaped with just a 10% rate. Trade Minister Don Farrell called the outcome “a vindication” of Australia’s calm diplomatic strategy. New Zealand wasn’t as fortunate—its rate was raised to 15%, prompting Trade Minister Todd McClay to warn that exporters may begin to feel meaningful strain at that level.
In Europe, at the time of writing, FTSE is down -0.58%. DAX is down -1.88%. CAC is down -2.15%. UK 10-year yield is down -0.024 at 4.549. Germany 10-year yield is down -0.014 at 2.682. Earlier in Asia, Nikkei fell -0.66%. Hong Kong HSI fell -1.07%. China Shanghai SSE fell -0.37%. Singapore Strait Times fell -0.48%. Japan 10-year JGB yield fell -0.003 to 1.553.
US NFP misses with 73k growth and sharp downward revision
U.S. non-farm payrolls rose just 73k in July, well short of the expected 102k. Unusually large revisions made the picture worse—June’s job growth was slashed from 147k to a mere 14k. Unemployment rate edged up from 4.1% to 4.2% as expected, while average hourly earnings rose 0.3% month-over-month, keeping the annual pace at 3.9%.
While not a disaster, the report showed a clear loss of momentum in hiring, pushing a September rate cut by the Fed back into focus. The sharp downward revision to June data adds weight to concerns that labor market strength is fading more quickly than anticipated.
EUR/USD bounces notably after the release as Dollar is sold off broadly. Immediate focus is now on 1.1555 support turned resistance. Sustained break there will argue that corrective pattern from 1.1829 has completed with three waves down to 1.1390. Further rally would then be seen back to 1.1788/1829 resistance zone.
Fed’s Waller and Bowman urge proactive rate cut amid labor market risks
Fed Governors Christopher Waller and Michelle Bowman issued rare public statements today defending their dissenting votes in favor of a rate cut at this week’s FOMC meeting. Both argued that a more proactive approach was needed to support the economy amid slowing growth and labor market softening.
Waller reiterated points he made in a July 17 speech, emphasizing that maintaining the current policy rate risks falling behind the curve. He argued that if tariffs don’t materially worsen inflation, rate reductions should continue at a moderate pace. In contrast, if inflation or employment picks up sharply, the Fed can always pause. “I see no reason we should hold and risk a sudden decline in the labor market,” he stated.
Bowman echoed similar concerns, saying the decision to begin gradually reducing rates was a hedge against further labor market weakness. She stressed that recent inflation increases tied to tariffs are likely transitory, and holding policy too tight could harm the Fed’s employment mandate. “A proactive approach… would avoid an unnecessary erosion in labor market conditions,” she said.
Eurozone CPI steady at 2% in July, reinforces case for ECB pause through rest of 2025
Eurozone inflation held firmer than expected in July, with headline CPI steady at 2.0% yoy, defying expectations for a slight dip to 1.9% yoy. Core CPI was unchanged at 2.3% yoy as forecast. Today’s inflation release reinforces the growing expectation that ECB already completed the easing cycle, as the bar for additional easing is increasingly high.
The underlying components show little sign of disinflation picking up momentum. Non-energy industrial goods inflation rose to 0.8% from 0.5%. While energy inflation remained deeply negative at -2.5%, that decline is slowing. Food inflation ticked up slightly from 3.1% to 3.3%. Services inflation eased only modestly from 3.3% to 3.1%.
Swaps now price in less than 50% chance of another rate cut this year. Comments from officials in recent weeks have leaned cautious, citing inflation stabilization at and waning downside risks tied to the global trade environment. The recent breakthrough in US-EU trade negotiations has also removed a key external headwind.
Besides, major banks are shifting their forecasts in line with this view. Deutsche Bank, Goldman Sachs, and BNP Paribas have all walked back expectations for more cuts in 2025.
European data wrap: PMI points to manufacturing recovery across Europe
China Caixin PMI manufacturing contracts again as export demand falters
China’s Caixin Manufacturing PMI dropped from 50.4 to 49.5 in July, signaling renewed contraction in factory activity and marking the second sub-50 reading in the past three months.
S&P Global’s Jingyi Pan noted that manufacturing production declined for only the second time since October 2023, as firms pulled back operations amid cautious demand outlook heading into H2 2025.
Weaker foreign demand was again a key drag, with export orders remaining sluggish amid global trade tensions. Domestic sales saw some resilience thanks to business development efforts, but overall growth was described as “only fractional.”
EUR/USD Mid-Day Outlook
Daily Pivots: (S1) 1.1391; (P) 1.1426; (R1) 1.1449; More…
Intraday bias in EURUSD is turned neutral first with current strong rebound. Immediate focus is now on 1.1555 support turned resistance. Sustained break there will argue that near term corrective pattern from 1.1829 has already completed with three waves down to 1.1390. Further rise should then be seen to 1.1788/1829 resistance zone. On the downside, though, break of 1.1390 will extend the correction to 38.2% retracement of 1.0176 to 1.1829 at 1.1198.
In the bigger picture, rise from 0.9534 long term bottom could be correcting the multi-decade downtrend or the start of a long term up trend. In either case, further rise should be seen to 100% projection of 0.9534 to 1.1274 from 1.0176 at 1.1916. This will remain the favored case as long as 1.1604 support holds.
