US jobs report rattles markets
Last week was packed with headlines – Trump’s tariff deadline, a flurry of trade deals, and central bank meetings – but it was the US payrolls report that ultimately stole the spotlight and rattled financial markets, forcing the US dollar to make a U-turn.
The US dollar plunged sharply on Friday, alongside US yields, after July’s nonfarm payrolls delivered a downside surprise. The dollar index suffered its biggest one-day drop since May 23 as markets swiftly reassessed the outlook for rates and growth.
The headline miss was the worst since January, but the real shock came from the massive -133k revision to June’s figure – slashed from 147k to just 14k. That’s the largest downward adjustment since the pandemic, and in percentage terms, the biggest since 2017. The three-month average gain now stands at just 35k, the weakest since 2020.
An even bigger shock was that President Trump claimed the figures were “rigged” and went on to fire Erika McEntarfer, the Commissioner of Labor Statistics at the Bureau of Labor Statistics (BLS). This risks damaging the credibility and eroding public trust of federal statistics, whilst destabilising markets.
These revisions also cast serious doubt on the assumption of continued US economic strength that had driven equities to fresh highs last week. With job creation far weaker than expected, pressure is mounting on the consumer economy and lends credibility to Fed dissenters who’ve warned of labour market softness. As a result, markets are once again pricing in an over 80% possibility of a September rate cut and this has all created a new window for near-term dollar weakness.
Euro records best day since April
The euro capitalized on dollar weakness, posting its largest one-day gain since early April and reclaiming half of the prior week’s losses. On the weekly chart, selling pressure appears exhausted, with EUR/USD rebounding off key support at the 21-week and 100-day moving averages.
The euro’s modest declines last month did little to dent its steep gains in 2025. Now, a combination of weak US data and renewed political pressure on the Fed may pave the way for the shared currency to climb to fresh highs. A re-test of the $1.18 threshold could be on the cards sooner than we anticipated.
President Trump’s volatile tariff policies and his escalating campaign to push the Fed toward rate cuts have fed a growing narrative: that the euro offers a viable alternative to the dollar. That theme gained extra traction recently, especially as Trump’s latest round of tariff announcements revived concerns about policy instability and economic fallout.
With Trump’s economic agenda injecting volatility into US policy, the euro may continue to benefit from relative stability and investor scepticism toward the dollar. If the Fed caves to political pressure and cuts rates in September, EUR/USD could break to new highs.
BoE set to cut but sterling’s path remains murky
As a result of the dollar’s U-turn, GBP/USD snapped a 6-day losing streak and is edging closer towards $1.33, needing to break above the 100-day moving average to strengthen the case for more gains in the near term. However, GBP/EUR finds itself nestled back under the €1.15 handle after its biggest daily drop since April following Friday’s fallout.
Sterling will continue to be driven by external factors due to its high beta to global risk sentiment but it’s an important week on the domestic calendar too. The UK labour market is showing signs of strain, offering justification for a 25bp rate cut at the Bank of England’s (BoE) this Thursday. But with inflation still sticky – particularly in services – the case for accelerating the pace of easing remains weak.
Markets are almost certain the BoE will lower rates to 4% from 4.25%, continuing its quarterly rhythm of cuts. Yet behind that steady approach lies a divided committee. A three-way split is likely: some favouring no change, others backing 25bp, and a few pushing for a larger 50bp move.
The key question is whether labour market weakness is about to deepen. Payrolled employment has declined in seven of the past eight months, and the unemployment rate has edged higher. Vacancy data suggests the UK jobs market has cooled more than in other major economies. However, much of the softness is concentrated in hospitality – hit hard by April’s National Living Wage hike and payroll tax changes. So far, broader private sector weakness and redundancies remain limited.
Meanwhile, inflation remains uncomfortable. Services inflation is stuck at 4.7%, slightly above the Bank’s May forecast. While some of this is driven by rents and tax changes – factors expected to ease – annual price resets mean a meaningful drop may not come until next spring. Headline CPI has also risen to 3.6%, with food inflation exceeding expectations. That could prompt the Bank to nudge up its inflation forecasts.
The BoE is particularly sensitive to CPI between 3.5–4%, fearing it could become entrenched. While we’re less convinced, given labour market fragility, it’s another reason the Bank may avoid signalling faster cuts.
The pound’s price action has reflected this uncertainty, but we think GBP/EUR near €1.15 is fairly valued, aligned more with rate differentials.
Pound appears oversold versus USD, CAD and JPY
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Calendar: August 04-08
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*The FX rates published are provided by Convera’s Market Insights team for research purposes only. The rates have a unique source and may not align to any live exchange rates quoted on other sites. They are not an indication of actual buy/sell rates, or a financial offer.
