Euro stabilizes above $1.15 as weak US jobs data fuels Fed cut bets

The euro stabilized just above $1.15 on Wednesday, recovering from a seven-week low of $1.139 reached on August 1, as the US dollar weakened broadly following disappointing labor market data.

The US July nonfarm payrolls report missed expectations by a wide margin, showing the smallest monthly job gain in over a year. In addition, substantial downward revisions to the May and June figures reinforced the view that the labor market is cooling faster than anticipated.

This spurred a swift repricing in financial markets, with traders now assigning a near 80% probability to a Federal Reserve rate cut in September and fully pricing in two rate reductions by the end of the year.

Political developments added to the volatility, as President Trump abruptly dismissed a senior official at the Department of Labor, intensifying concerns over the administration’s response to softening economic data.

The move came just days before the new round of tariffs on EU goods took effect, with a 15% duty now imposed on a wide range of European exports to the US—a significant escalation from the 30% initially threatened but still a source of concern for European manufacturers.

In the Eurozone, macroeconomic data provided some support for the common currency. Preliminary estimates showed that annual headline inflation held steady at 2.0% in July, marginally above the expected 1.9%. Core inflation also remained firm, supporting the European Central Bank's cautious stance on interest rates.

Markets are now betting the ECB will hold rates unchanged well into 2026, as policymakers weigh the risks of persistent inflation against ongoing economic weakness in key economies like Germany and Italy.

Despite the euro’s modest rebound, investor sentiment remains fragile amid growing geopolitical and trade-related uncertainties. Analysts warn that the currency’s outlook will remain heavily dependent on the evolving rate differentials between the US and Eurozone, as well as on the outcome of high-stakes trade talks between Washington and Brussels. Any signs of a breakdown in negotiations or further tariff escalations could rekindle pressure on the euro in the near term.