The EUR/USD pair remained stable around 1.1625 during the early Asian session on Friday, as traders adopted a cautious stance ahead of the release of the US Non-Farm Payrolls (NFP) report for August, scheduled for later in the day [1]. Federal Reserve Governor Christopher Waller indicated on Thursday that he is inclined to keep interest rates unchanged at the Fed’s September meeting, provided upcoming inflation data does not present any surprises. This stance contrasts with the more hawkish tone expressed last week by Chairman Kevin Warsh [1]. Following Waller’s comments, the market-implied probability of a rate hike at the September Fed meeting dropped to 50.2%, down from 63.2% the previous day, according to the CME FedWatch tool [1].
Economists anticipate that the US economy will add 56,000 jobs in August, with the unemployment rate expected to remain steady at 4.1% [1]. Any positive surprises in the US labor market data could bolster the US Dollar against the Euro in the near term [1].
On the European side, the European Central Bank (ECB) is expected to raise interest rates at its September meeting for the second and final time in its shortest hiking cycle in 15 years, according to a Reuters poll [1]. Most economists surveyed believe that rising energy prices are unlikely to trigger broad inflationary pressures [1]. Strategists at Scotiabank note that Eurozone rate expectations have become more hawkish, with markets now pricing in nearly one full additional 25 basis point hike by year-end, beyond the 25 basis points expected for September. This shift in expectations has provided renewed support for the Euro, with the 2-year Germany-US yield spread fair value estimate at 1.1623, suggesting the currency is trading near its perceived fair value based on rate differentials [1].
Waller’s remarks were characterized as moderately hawkish but conditional, with the FXS Speechtracker score at 6.1/10, slightly below the historical average of 6.3/10. He emphasized that policy would likely remain steady in September if inflation continues to improve, but a strong inflation reading could prompt a rate hike. Waller also noted signs of disinflation, solid GDP growth, and a satisfactory labor market, while highlighting ongoing upside inflation risks [1].
CONCLUSION
The Euro’s stability above 1.1600 reflects market caution ahead of key US jobs data and central bank decisions. Shifts in rate hike expectations for both the Fed and ECB are influencing currency valuations, with traders closely watching upcoming economic releases for further direction.