The US Dollar (USD) stabilized on Friday after a period of weakness triggered by a softer-than-expected US jobs report, which led traders to reassess the outlook for Federal Reserve (Fed) interest rate hikes. The Euro (EUR) and British Pound (GBP) both held onto weekly gains against the USD, with EUR/USD trading around 1.1438 after reaching an intraday high of 1.1462, and GBP/USD consolidating near 1.3350, unchanged for the day but poised to end the week up over 1% [1][2].
Market participants are now pushing back expectations for the next Fed rate hike, with traders seeing a higher probability of a move in October rather than September, following the June Nonfarm Payrolls miss and downward revisions for April and May, which indicated -74K jobs were created in those two months [2]. The US Dollar Index (DXY) hovered around 100.76 after falling to a two-week low of 100.56 [1]. Money markets now show a 46% chance of a Fed rate hike by 2026, according to Prime Terminal data [2].
On the European front, softer-than-expected Eurozone inflation data earlier in the week raised doubts about further European Central Bank (ECB) tightening this year, though the risk of additional hikes remains as inflation is still above the 2% target [1]. ECB President Christine Lagarde stated that risks are "more broadly balanced than a few weeks ago" and reiterated the ECB's commitment to containing inflation [1]. ING strategist Francesco Pesole noted that while EUR/USD could benefit from asymmetric reactions to Fed policy, rallies may stall beyond 1.150-1.153, with a return above 1.16 forecast only later in the summer [1].
In the UK, the GBP's strength was not underpinned by domestic political developments or economic data, as the S&P Global Services PMI for June fell from 49.3 to 48.8, marking the fourth consecutive monthly decline in New Orders due to persistent cost pressures and consumer constraints [2]. Futures markets imply a 70% chance of a Bank of England rate hike by the end of 2026 [2]. Technical analysis shows GBP/USD trading below key moving averages and resistance levels, suggesting the recent rebound may be corrective rather than the start of a sustained rally [2].
Looking ahead, traders are awaiting the release of the FOMC minutes and the next US inflation report on July 14, as well as UK Bank of England speeches and the Financial Stability Report next week [2].
CONCLUSION
Both the Euro and British Pound have managed to hold onto recent gains against the US Dollar as traders push back expectations for further Fed tightening following weaker US jobs data. However, uncertainty remains high regarding the future policy paths of the Fed, ECB, and Bank of England, with upcoming economic releases and central bank communications likely to drive the next moves in currency markets.