By Linh Tran, Market Analyst at XS.com
The U.S. labor report released last Friday delivered a fairly clear message: the U.S. economy is cooling, but in a controlled manner. The data were not weak enough to trigger an aggressive policy pivot from the Federal Reserve, yet no longer strong enough to sustain a structurally strong U.S. dollar. As a result, while downside pressure on the dollar has emerged, EURUSD still lacks the momentum needed to establish a clear bullish trend.
Non-Farm Payrolls rose by just 50,000 jobs, falling short of market expectations and confirming a noticeable slowdown in hiring compared with previous months. This outcome was largely consistent with earlier signals from leading indicators such as ADP and JOLTS. However, the overall picture was not outright negative. The unemployment rate unexpectedly declined to 4.4%, while average hourly earnings remained steady at 0.3% month-on-month. These figures suggest that the U.S. labor market is easing gradually rather than deteriorating abruptly, reinforcing the view of a cooling economy rather than an imminent recession.
The U.S. dollar’s reaction to Friday’s data was relatively cautious. While the weaker-than-expected NFP figure helped reinforce expectations for eventual Fed easing, the decline in the unemployment rate and stable wage growth acted as a counterbalance, limiting downside momentum in the dollar. Overall, the market gained further confidence that the Fed may cut rates in the medium term, but not under immediate pressure to act. As a result, the DXY appears more likely to trade cautiously rather than enter a new, sustained bearish cycle.
Another notable element from Friday’s data was U.S. consumer inflation expectations, which remained elevated at 4.2% according to the preliminary University of Michigan survey. With inflation control still a top priority for the Fed, this level makes it difficult for policymakers to adopt a decisively dovish stance in the near term.
Consequently, despite signs of cooling in the labor market, the Fed is likely to maintain a cautious, data-dependent approach, particularly ahead of upcoming inflation releases. This helps explain why the recent weakening in the U.S. dollar and the rebound in EURUSD remained limited during the latest session.
On the euro side, there is still a lack of strong catalysts to drive a sustained move. Economic growth in the euro area continues to face headwinds, while the ECB has maintained a cautious tone as inflation pressures gradually ease. As a result, the policy divergence between the Fed and the ECB has not narrowed in a meaningful way, making it difficult for capital flows to shift decisively in favor of the euro. This dynamic continues to cap EURUSD’s upside potential.
Current price action in EURUSD reflects a broader “wait-and-see” mindset across the market. Investors are no longer reacting aggressively to individual data points, instead focusing on the broader macro picture and upcoming key releases, most notably U.S. CPI data and further guidance from the Fed. In this environment, EURUSD is more likely to trade within a range, with short-term, technically driven moves rather than the emergence of a clear directional trend.
From my perspective, last Friday’s U.S. economic data further support the narrative of a cyclical cooling in the U.S. dollar, but not one strong enough to confirm an immediate trend reversal. For EURUSD, this means the pair is supported at lower levels, yet still lacks the catalyst needed for a decisive breakout.
As long as the market does not see clearer evidence of sustainably declining U.S. inflation and a forced shift toward earlier Fed easing, EURUSD is likely to continue oscillating within the 1.1600 – 1.1800 range, supported by expectations on one hand, but constrained by policy realities on the other.