Forex: Euro and pound strengthen as U.S. jobs data weighs on dollar

Morning Forex Market Overview

On the forex market, the instrument is testing the 1.1720 mark for a breakout to the upside.. Investors are assessing July’s German industrial production data, which showed a 1.5% year-over-year increase after –1.8% the previous month, and a 1.3% monthly rise following –0.1%. In the U.S., Friday’s August labor market report reinforced expectations that the Federal Reserve could restart monetary easing in September. The economy created only 22,000 new jobs in August, well below the prior 79,000 and the forecast of 75,000. Average hourly earnings slowed from 3.9% to 3.7% y/y, signaling weaker inflationary pressure, while rising 0.3% m/m. The unemployment rate edged up from 4.2% to 4.3%. These figures increased speculation that the Fed might consider a 50-basis-point rate cut, though CME Group’s FedWatch Tool currently assigns only a 12% probability. Meanwhile, the single currency received moderate support after the eurozone’s Q2 GDP release: annual growth accelerated from 1.4% to 1.5%, while quarterly growth stood at 0.1%. Employment slowed from 0.7% to 0.6%. Additionally, July German factory orders dropped 3.4% y/y after a 1.7% rise previously, and 2.9% m/m after –0.2%.

GBP/USD

The pound is trading near flat against the dollar around 1.3510 during the morning session, consolidating after support on Friday when the U.S. currency weakened following the labor market report. U.S. nonfarm payrolls rose by just 22,000 in August versus 79,000 the month before and a forecast of 70,000. The labor force participation rate increased slightly from 62.2% to 62.3%, while unemployment rose from 4.2% to 4.3%. Average hourly earnings slowed from 3.9% to 3.7% y/y, though rose 0.3% m/m. The weak figures heightened expectations of a 25-basis-point Fed cut on September 17, with a 50-basis-point cut still possible. The Bank of England could also consider resuming monetary easing, given its weaker economic resilience. On Friday, the pound found support from July retail sales data, which grew 1.1% y/y (vs 0.9% previously, forecast 1.3%) and 0.6% m/m (vs 0.3% previously, forecast 0.2%). At 08:00 (GMT+2) on Friday, the U.K. will release July GDP and industrial production, with forecasts pointing to growth slowing from 0.4% to 0.0%.

AUD/USD

The Australian dollar is strengthening against the U.S. dollar in the Asian session, extending last Friday’s bullish momentum after weak U.S. labor data boosted hopes of Fed easing at the September 17 meeting. Markets also expect dovish guidance through year-end. U.S. payrolls added 22,000 in August, far below expectations, while unemployment rose to 4.3% and wage growth slowed to 3.7% y/y. Some pressure on the aussie comes from China’s August trade data: exports slowed from 7.2% to 4.4% y/y (forecast 5.0%), imports from 4.1% to 1.3% (forecast 3.0%). Still, China’s trade surplus rose from $98.24B to $102.33B, above the $99.2B forecast. Meanwhile, support for AUD/USD came from news of rising U.S. meat exports, which hit a record $463.5B in July, as higher tariffs on other countries boosted demand for Australian supplies, even with a 10% base import tariff.

USD/JPY

The U.S. dollar is falling against the yen in Asia, extending last week’s downward move after briefly breaking below 147.00. Friday’s U.S. labor report raised expectations of a Fed rate cut in September. The U.S. created only 22,000 jobs in August, well below expectations, unemployment rose to 4.3%, and wages slowed to 3.7% y/y. In Japan, Q2 GDP accelerated from 0.3% to 0.5%. Bank lending rose from 3.2% to 3.6% in August, and the Eco Watchers current index climbed from 45.2 to 46.7 (forecast 45.7). Still, political uncertainty weighs on the yen. On Sunday, Prime Minister Shigeru Ishiba announced his resignation as head of the Liberal Democratic Party after losing July’s parliamentary elections. Meanwhile, Japan reached an agreement with the U.S. to impose a 15% tariff on exports, down from the initially proposed 25%.

XAU/USD

Gold begins the week with slight losses, holding near record highs and the key $3600 resistance. The metal is supported by dollar weakness after Friday’s weak U.S. labor report. Payrolls rose by just 22,000 in August, unemployment climbed to 4.3%, and wage growth slowed to 3.7% y/y, though added 0.3% m/m. These data keep alive speculation of a 50-basis-point Fed cut on September 17. Geopolitical risks also support gold demand, with tensions rising over a potential new conflict between the U.S. and Venezuela. Markets are also weighing the negative impact of President Donald Trump’s aggressive tariff policies.