Euro snaps two-week slide as weak US jobs data weighs on dollar

The euro edged higher on Friday, extending gains for a second consecutive session and positioning itself to end a two-week losing streak against the dollar, after a sharply disappointing U.S. jobs report dampened expectations for near-term Federal Reserve tightening. However, fading prospects for further European Central Bank rate hikes may cap the single currency's upside.

Weak Payrolls Undercut Dollar

EUR/USD rose to around 1.145 on Friday, according to ECB reference rate data, after the U.S. Labor Department reported on Thursday that nonfarm payrolls increased by just 57,000 in June — roughly half the 110,000 economists had forecast. Revisions subtracted a further 74,000 jobs from April and May tallies, reinforcing signs of a cooling labor market.thehill+1

The dollar index fell sharply following the report, dropping 0.66% on Thursday, as traders slashed the probability of a July Fed rate hike to below 20%. Futures markets now price about a 60% chance of a rate increase in September, down from roughly 75% before the data. The Fed's policy rate currently stands at 3.50%-3.75%.reuters+2

"The slowdown in payroll growth challenges the narrative of renewed labour market strength that has been building in recent months but, importantly, reinforces the view that the Federal Reserve is under little pressure to tighten policy," wrote Seema Shah, chief global strategist at Principal Asset Management.reuters

ECB Hike Doubts Limit Euro Upside

While dollar weakness has lifted the euro from its recent trough near 1.1383 at the start of the week, analysts warn that gains may prove limited. Markets price a 93% probability that the ECB will hold rates steady at its July 23 meeting, and expectations for a September move have diminished.ecb.europa+1

ECB President Christine Lagarde said at the central bank's annual Sintra forum on Wednesday that risks to inflation and growth in the eurozone "are probably more broadly balanced than they were a few weeks ago," according to Bloomberg. The remarks reinforced the view that the ECB's June rate hike — its first since 2023, which lifted the deposit rate to 2.25% — could prove to be a one-off.bloomberg+1

ING forecast in June that EUR/USD could be pushed to the 1.13-1.14 area in July, suggesting the pair is now trading near the upper end of its expected near-term range. J.P. Morgan similarly sees EUR/USD hovering between 1.13 and 1.15 over the next three quarters.think.ing+1

Balancing Act Ahead

The euro's trajectory now hinges on whether incoming data supports further ECB tightening or confirms that the June hike was precautionary. With U.S. labor market momentum fading and the Fed on hold, the dollar faces headwinds — but the single currency's gains remain constrained by the eurozone's own uncertain policy path.