The EUR/USD currency pair rebounded to around 1.1260 on Friday, gaining 0.16% on the day after hitting an intraday low of 1.1221, as the US Dollar weakened in response to disappointing US employment data [1]. The US Bureau of Labor Statistics reported that Nonfarm Payrolls (NFP) increased by only 29,000 in September, well below market expectations of 90,000 [1]. Additionally, previous months' figures were revised downward: August's increase was adjusted to 133,000 from 162,000, and July's growth was revised from 21,000 to a decline of 10,000, resulting in a combined downward revision of 60,000 jobs for July and August [1].
Other labor market indicators also pointed to softness, with the Unemployment Rate rising to 4.2% and the Labor Force Participation Rate ticking up to 61.8% from 61.6% [1]. Average Hourly Earnings rose 3% year-over-year, below the expected 3.2%, which eased concerns about wage-driven inflation [1]. The US Dollar Index (DXY) fell around 0.23% to trade near 101.80 following the data release [1].
Market expectations for Federal Reserve policy shifted notably after the report. According to the CME FedWatch tool, the probability of an interest rate hike at the Fed's October meeting dropped to about 17%, down from 24% before the NFP release and 64% a week earlier [1]. This adjustment followed two days of softer US economic data, including weaker-than-expected PCE inflation figures on Thursday [1]. However, the probability of a rate hike at the December meeting remained higher, with markets still pricing in around a 62% chance [1].
On the Euro side, the currency remains exposed to domestic challenges despite Friday's rebound. Preliminary Harmonized Index of Consumer Prices (HICP) data showed Eurozone inflation accelerated to 3.8% year-over-year in September from 3.2% in August, surpassing expectations of 3.6% [1]. Core inflation edged up to 2.5% from 2.4%, matching forecasts [1]. These stronger inflation figures could increase pressure on the European Central Bank to maintain a restrictive monetary stance, though concerns over France persist [1].
CONCLUSION
Weaker-than-expected US jobs data and downward revisions to prior months triggered a sharp drop in the US Dollar and reduced market expectations for a near-term Federal Reserve rate hike. The Euro benefited from the Dollar's weakness and stronger-than-expected Eurozone inflation data, though domestic challenges remain. Overall, the market reaction was significant, with shifting rate hike probabilities and notable currency moves.