The US dollar is struggling following recent poor jobs data. It has started the session down across multiple fronts, affected by newly imposed tariffs. The market is now focusing on US economic data and upcoming Federal Reserve decisions. Last week’s labour report hints at ongoing weakness in the jobs sector for Q3.
EUR/USD has gained 0.2%, hitting its highest level since last Monday and nearing 1.1700. Much of its late July decline has been erased. USD/JPY has decreased by 0.3% to 146.85, after confusion over Japan’s tariffs, which Japan sees as a ceiling but the US claims as additional.
Currency Trends Amid Current Market Scenario
In other areas, GBP/USD has risen above key hourly averages, increasing by 0.1% to 1.3370. AUD/USD is up by 0.3% to 0.6520, moving above 0.6500 for the first time in a week. However, large option expiries at this level may create fluctuations.
Overall, with the dollar declining and the short-term trend changing, attention turns to the upcoming US CPI report. The currency faces pressure as it anticipates further developments.
The weak jobs report from last Friday, August 1st, is the main driver right now. Coming in at just +55,000 against an expected +150,000, it has shifted our view for the third quarter and sent the unemployment rate up to 4.2%. We are now seeing the market, via the CME FedWatch Tool, pricing in a 75% probability of a Federal Reserve rate cut in September, a significant jump from just 40% before the report.
This dollar weakness creates a clear opportunity in EUR/USD, which is pushing towards 1.1700. The European Central Bank’s recent firm stance against cutting rates, contrasting sharply with the Fed’s new dovish tilt, is adding to the pair’s strength. We are considering buying call options to capture further upside while managing risk ahead of next week’s US inflation data.
Market Outlook and Strategies
For USD/JPY, the drop below 147.00 is significant. With US 10-year Treasury yields falling back towards 3.85% after the jobs data, the rate advantage the dollar held over the yen is shrinking fast. This makes shorting the pair, or buying put options, an attractive strategy for the coming weeks.
We’re also seeing strength in GBP/USD and AUD/USD, with both currencies rising against the dollar. The Aussie, now above 0.6500, is getting an extra lift from better-than-expected manufacturing data out of China earlier this week. However, derivative traders should be cautious with the large AUD/USD option expiries at the 0.6500 level, which could cause some volatility tomorrow.
All eyes are now on the upcoming US CPI report next week. Another soft inflation reading would confirm the economic slowdown and likely seal the deal for a Fed rate cut, pushing the dollar even lower. This suggests positioning for continued dollar weakness, but perhaps with strategies that limit risk, like bull call spreads on the Euro, in case of a surprise.
