Payrolls drop In – markets hold their breath
After tumbling from the 100 level on August 1st following a weak non-farm payroll (NFP) print, the dollar index (DXY) drifted sideways through August, trapped in a 97.500–98.500 range. The lack of direction stems from a shift in how markets digest headline risks -particularly those tied to Trump. Take tariff threats as an example, these are no longer automatic dollar negatives. Instead, investors are filtering these through the lens of macro data.
Take last week’s 50% tariff on India – the steepest yet for a developing nation. The dollar initially rallied before paring gains, as markets weighed India’s potential retaliation. Months ago, such a move might have triggered a sharper selloff. Now, risk premia are increasingly embedded in fundamentals, allowing for the dollar to end last week slightly higher as overall data releases were quite positive.
On the Fed front, the Cook saga has had limited impact. Legal resistance has dampened speculation, and the real risk – a dovish Fed tilt – remains a 2026 story, with Powell’s replacement likely to matter more than today’s headlines.
Meanwhile, Powell’s Jackson Hole remarks hinted at a 25bp cut in September, citing labour market softness. Yet markets remain cautious, pricing in ~80% odds. Data hasn’t been, overall, weak enough to fully justify a cut, and tariff-driven inflation fears persist.
This Friday’s NFP is pivotal. A strong print could break the DXY’s range and test 98.500 resistance. While risks remain skewed to the downside, we recommend waiting for higher levels to sell USD, as short-term upside into early September is plausible.
NFP in focus as EUR/USD awaits direction
EUR/USD slipped 0.4% last week, weighed down by political unrest in France and the Netherlands. While widening eurozone spreads rarely move the needle, this latest turmoil reinforces the perception of a fragmented bloc ill-equipped to counter Trump’s protectionist stance – denting euro sentiment.
Still, the pair’s main driver remains the US dollar. August’s indecisive dollar has kept EUR/USD range-bound between 1.16 and 1.17. The euro’s 2% rally earlier this month stemmed from the weak US labour data on August 1st. Since then, broadly resilient US data has capped further upside, and technical momentum has faded – highlighted by the 21-day moving average crossing below the 50-day. That bearish crossover remains intact, yet this Friday’s US jobs report could be pivotal. A downside surprise may reignite bullish momentum for EUR/USD, while a strong print could drag the pair below 1.16. Until then, expect continued consolidation within the current range.
On the ECB front, last week’s minutes reaffirmed a wait-and-see stance. While growth and deflation concerns persist, no immediate rate action is expected. The euro, therefore, remains largely neutral to policy repricing in the short-term, with US macro and trade headlines taking centre stage.
Risks tied to EU-US trade negotiations linger. The bloc’s willingness to make concessions for business clarity may backfire, as seen in late July when poorly negotiated terms triggered a 1% drop in the euro. Still, sentiment remains cautiously constructive. If US data softens and trade tensions ease, EUR/USD could retest the 1.18 highs seen in early July. Back then, a similar fundamental setup – marked by a dovish Fed tilt – provided the fuel for the rally. While euro sentiment is more fragile today, the underlying conditions could still support a move higher.
When it comes to data, besides the almighty NFP, keep an eye out for Eurozone CPI. it would take a significantly lower-than-expected Eurozone aggregate CPI this week—especially in light of last week’s upside surprise in Germany’s CPI and the recent upward revisions to ECB inflation expectations – to meaningfully move the needle for EUR/USD via the rate expectations channel.
Beware sterling’s calendar curse
Sterling has staged a modest rebound recently, supported by a string of upbeat UK economic data, a shift in market expectations toward a more hawkish Bank of England (BoE) stance, and elevated risk appetite. Following a sharp 4% drop in July, GBP/USD recovered over 2% in August, largely consolidating between $1.34 and $1.36.
However, seasonal headwinds remain a concern – September has historically been a weak month for the pair, with an average decline of 0.5% historically and more than 2% over the past five years. Broader Q3 trends also weigh on sentiment, with sterling showing a median quarterly drop of -0.9% against the euro and -1.1% versus the dollar over the last decade – a pattern that appears to be holding again this year.
The recent pound rebound reflects a partial unwind of the excessive economic pessimism that had built up, but calling it a sustained recovery remains premature. Fiscal uncertainty ahead of the autumn budget and the risk that BoE repricing is driven more by sticky inflation than genuine growth momentum could cap sterling’s upside. While recent data has softened the bearish narrative, it hasn’t reversed it. This week, attention turns to UK retail sales and final PMI readings – key inputs for gauging whether the recent bounce has legs.
Sterling crosses lose momentum
Table: Currency trends, trading ranges and technical indicators
Key global risk events
Calendar: September 1-5
All times are in BST
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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.
