EUR/USD stumbles on solid US NFP data, traders bet for a July Fed hike

US adds 339K jobs, beating estimates; EUR/USD slips by 0.43%.
Federal Reserve’s hawkish outlook hints at a possible July FFR increase.
Positive economic indicators from Europe, including Italy’s Industrial Production and Spain’s Unemployment Change.

EUR/USD slumps from weekly highs reached as a knee-jerk reaction to a solid US jobs report, driving the pair towards 1.0779 before sliding toward daily lows. The labor market in the United States (US) stayed strong but saw slight signs of weakness. At the time of writing, the EUR/USD is trading at 1.0715, printing losses of 0.43%.

EUR/USD pair exhibits a weak response to robust US jobs data; US Federal Reserve’s future rate decisions loom

In early trading, before Wall Street opened, the US Department of Labor revealed May employment figures, with the economy adding 339K jobs, above estimates of 190K. Even though the figure is positive for the economy, the Unemployment Rate ticked to 3.7%, from 53-year lows of 3.4%, sought by the Fed as a sign that can undermine consumer spending. Average Hourly earnings rose 0.3%, up 4.3% YoY, less than April’s figure of 4.4%.

Given the backdrop, traders pricing in a hawkish US Federal Reserve (Fed), despite skipping the June monetary policy meeting, expect another increase to the Federal Funds Rate (FFR) in July toward the 5.25%-5.50% area. But, the rising unemployment rate would make the Fed’s job easier as it scrambles to tame high inflation and double its target.

Since the data release, the EUR/USD pair lost 40 pips or 0.40% intraday, threatening to get toward the 1.0700 figure as the greenback limps its wounds. The US Dollar Index (DXY) climbs 0.44%, again above the 104.000 figure.

Events that took the headlines over the last couple of weeks, like the US debt-ceiling crisis, were solved late Thursday night, with the US Senate passing the bill, set to be signed by US President Joe Biden. The ceiling would be raised, though we would witness the same soap opera by January 1, 2025.

Across the pond, the latest European Central Bank (ECB) meeting minutes showed that hawks were striving for a 50 bps, but “consensus” voted for a 25 bps at the expense of further tightening ahead. Data-wise, the economic docket showed Industrial Production in Italy, at 0.8% MoM, above estimates of 0.3%, while the Unemployment Change in Spain hit -49.3K, above forecasts of -40.1 K.