The US Dollar (USD) experienced significant selling pressure following the release of a much weaker-than-expected US Nonfarm Payrolls (NFP) report for July. According to the Bureau of Labor Statistics, NFP declined by 23,000, compared to market expectations for an increase of 80,000 jobs. Additionally, previous months' figures were revised sharply lower, with June payrolls revised from 57,000 to 20,000 and May from 129,000 to 63,000, resulting in a combined downward revision of 103,000 jobs [1]. Despite the deterioration in payroll growth, the Unemployment Rate edged down to 4.1% from 4.2%, and the Labor Force Participation Rate slipped to 61.4% from 61.5%. Annual Average Hourly Earnings growth slowed to 3.2% from a downwardly revised 3.4% in June [1].
The immediate market reaction saw EUR/USD jump 0.43% on the day, trading around 1.1570, as investors reduced bets on further Federal Reserve (Fed) tightening. The CME FedWatch Tool indicated that the probability of a 25-basis-point rate hike at the September meeting fell to 44%, down from 55% a day earlier and 67% a week ago. Markets no longer see a September rate hike as the most likely outcome, though a high chance of at least one 25-basis-point increase before year-end remains priced in [1].
Silver (XAG/USD) also rallied strongly, reaching a six-week high around $64.10, up 4.16% on the day. This marks its best weekly performance since February, driven by fading expectations of further Fed rate hikes and persistent demand for safe-haven assets. The rally was further supported by ongoing geopolitical tensions in the Middle East, including potential escalation involving Iran, Ansar Allah in Yemen, and Saudi Arabia, as well as uncertainty around the Strait of Hormuz [2].
Commerzbank's Thu Lan Nguyen commented that the US Dollar's support from perceived hawkish Fed policy is likely to fade as markets reassess US rate expectations over the coming quarters. While the Euro's upside is seen as limited due to energy-related growth and rate headwinds, EUR/USD is forecast to grind higher towards 1.19 by the end of 2027 as US rate expectations ease. Nguyen also noted that if US-Iran tensions ease, inflationary pressures could moderate, potentially prompting the Fed to shift focus towards supporting growth and even resume rate cuts [3].
In Europe, German economic data provided only limited support to the Euro, with Industrial Production rising by 0.2% in June (above expectations of 0.1% but below May's 0.7%) and the Trade Balance surplus narrowing to €15.4B, below market expectations. The European Central Bank (ECB) maintained a cautious stance, leaving rates unchanged and signaling only one additional hike likely before year-end [1].
CONCLUSION
A sharply weaker US jobs report has triggered a repricing of Fed rate hike expectations, resulting in a surge for both the Euro and Silver. While the immediate market reaction is bullish for these assets, analysts suggest that the longer-term outlook will depend on further developments in US monetary policy and geopolitical tensions.