US Jobs Data Sparks Fed Cut Bets, Dollar Retreats (4-8 August)

The BoJ kept its rate steady at 0.50% for a fourth consecutive meeting, with policymakers unanimous in their decision.

The dollar index slipped to 99 as soft jobs data fueled rate cut bets. EUR/USD surged 1.37% to $1.1571. USD/JPY dropped 2.23% to 147.37, while GBP/USD rebounded to 1.328 despite looming BoE cuts.

Gold climbed nearly 2% to above $3,360, boosted by Fed easing bets and Trump’s new tariffs. Silver rose over 1% to surpass $37. WTI crude fell 2.7% to $67.3 on OPEC+ output hike signals, though supply disruption risks capped further losses.

US 10-year Treasury yields fell to 4.25%, a three-month low, after weak jobs data raised expectations of a September Fed cut. Bund and gilt yields followed, dropping to 2.66% and 4.52%, as ECB and BoE easing bets increased. Japan’s 10-year yield stayed at 1.55% after the BoJ held rates steady.

US nonfarm payrolls rose just 73,000 in July, with prior months revised down by 258,000. The unemployment rate ticked up to 4.2%. Core PCE inflation stayed at 2.8%, while job openings dropped to 7.437 million. Consumer confidence rose to 97.2, showing resilience despite labor market cracks.

Fixed Income

US 10-year Treasury yields fell nearly 20bps to 4.25%, a three-month low, after July’s soft jobs report heightened expectations of a September Fed rate cut. The Treasury's announcement of increased buybacks further supported demand, while Trump's new tariffs on Switzerland, the EU, Japan, and Korea added to risk-off sentiment.

Germany's 10-year Bund yield declined to 2.66% alongside falling US yields, as markets priced in a 75% chance of a September Fed cut. Eurozone inflation hovered slightly above expectations, but ECB easing bets inched higher, with a 60% probability of a December rate cut. Markets are also digesting the potential impact of US tariffs on EU exports.

UK 10-year gilt yields dropped to 4.52%, tracking US yields lower, as weak US jobs data solidified Fed rate cut expectations. With UK growth faltering, markets see the BoE cutting rates to 4% next week, with further easing likely this year.

Japan’s 10-year bond yield held firm at 1.55% after the BoJ left rates unchanged for a fourth straight meeting. While the recent US-Japan trade deal imposed a lower-than-expected 15% tariff, BoJ policymakers maintained a cautious tone given global uncertainties and short-term inflation softening.

Nonfarm Payrolls (July)

The US added just 73,000 jobs in July, well below forecasts of 106,000, with May and June’s figures revised down by a combined 258,000. The slowdown in hiring has pushed the probability of a September Fed rate cut to 75%, signaling broader concerns over economic momentum.

Unemployment Rate (July)

The jobless rate edged up to 4.2% from 4.1% in June, confirming a cooling labor market. With participation flat and hiring demand softening, the Fed gains flexibility to adopt a measured easing approach.

Core PCE Inflation (June)

Core PCE inflation held steady at 2.8% YoY, matching estimates. While inflation remains above target, soft labor data suggests the Fed is likely to proceed cautiously with data-dependent easing rather than aggressive cuts.

JOLTS Job Openings (June)

Job openings fell to 7.437 million in June, down from 7.712 million, signaling cooling labor demand. This supports the broader narrative of a slowing job market in response to tight monetary policy.

Consumer Confidence (July)

The Conference Board’s index rose to 97.2, reflecting resilient household sentiment despite labor market cracks. However, further job market deterioration could weigh on consumer confidence in coming months.

Germany GDP (Q2)

The economy contracted by 0.1%, in line with forecasts, underscoring ongoing stagnation driven by weak industrial output, falling exports, and sluggish domestic demand. The data bolsters the case for ECB easing later this year.

Germany CPI (July)

Consumer prices rose 0.3% MoM, as expected, indicating a moderation in inflation pressures. This supports a gradual ECB approach to easing, though policymakers remain cautious.

Eurozone CPI (July)

Annual inflation in the Eurozone hit 2.0%, matching both forecasts and the ECB’s target. Persistent core inflation and service price pressures suggest the ECB will maintain a wait-and-see stance, with markets pricing a 60% chance of a December cut.

ECB Rate Outlook

With weak growth and soft labor markets, the ECB is expected to shift towards easing in the coming months, though the pace will likely be slower than the Fed’s, given lingering inflation concerns.

Eurozone Manufacturing PMI (July)

The PMI remained below 50, signaling contraction in factory activity. This raises recession risks and puts further pressure on the ECB to pivot towards accommodative measures.

Bank of Japan Rate Decision (July 2025)

The BoJ kept its rate steady at 0.50% for a fourth consecutive meeting, with policymakers unanimous in their decision. Despite short-term inflation softening, the BoJ expects a pickup later in the year. Rising global uncertainties and the recently agreed 15% US-Japan trade tariff have kept the BoJ cautious. While the bank is in no rush to tighten further, it remains open to gradual hikes if inflation gains traction.

Currencies

The US dollar index slipped to 99 on Friday, retreating from a two-month high of 100, as July's disappointing nonfarm payrolls (73,000) and downward revisions to prior months intensified bets on multiple Fed rate cuts. Rising trade tensions also weighed, with the US enforcing tariffs on the EU, Japan, and Korea, and further duties looming for Brazil, Switzerland, and India. The euro strengthened after a surprise uptick in Eurozone inflation bolstered hawkish ECB expectations, adding to the dollar’s weakness.

EUR/USD jumped 1.37% to $1.1571, its sharpest daily gain since April, after soft US jobs data ramped up Fed cut expectations. The pair rebounded from a seven-week low as stronger Eurozone inflation reduced the likelihood of ECB easing, while broad dollar weakness and tariff uncertainty fueled the rally.

USD/JPY tumbled 2.23% to 147.37, its steepest drop since January 2023. Weak US labor data reinforced rate cut bets, while Japanese officials’ warnings about currency volatility lent further support to the yen, despite the BoJ signaling no urgency for rate hikes.

GBP/USD climbed to 1.328, recovering from recent lows, as soft US jobs data pressured the dollar. Despite July marking the pound’s worst month in three years, dollar weakness drove a rebound. However, with the BoE expected to cut rates to 4% next week and further easing priced in, downside risks for sterling persist.

Commodities

Gold surged nearly 2% to over $3,360, as weak US jobs data lifted odds for a September Fed rate cut to 75%. The disappointing payroll figures (73,000 new jobs in July) and Trump’s sweeping new tariffs, including a 10% global rate and up to 41% on non-trade-deal countries, amplified safe-haven demand.

Silver followed suit, rising over 1% to break above $37, buoyed by escalating tariff tensions and expectations of Fed easing. Fresh metal import tariffs further boosted momentum, though gains were somewhat tempered by Fed caution and a firm dollar backdrop.

WTI crude fell 2.7% to $67.3, pressured by reports that OPEC+ may raise output by 548,000 bpd in September. Trump’s tariffs on imports from Canada and India added to the drag, yet concerns over supply disruptions, particularly from 100% secondary sanctions on Russian oil buyers, helped limit further losses.

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