Euro Books 0.5% Weekly Gain

The euro ended the week just above $1.14, gaining 0.5% as the dollar weakened following disappointing US nonfarm payrolls. The US economy added only 57,000 jobs last month, far below expectations, while the unemployment rate unexpectedly fell to 4.2% as workers left the labor force. The euro’s advance was capped by softer Eurozone inflation and dovish comments from ECB President Christine Lagarde, which reduced expectations for a third ECB rate hike this year. Markets still favor a second hike as the most likely outcome. June data showed headline inflation slowing to 2.8% from 3.2% in May, below forecasts, while core inflation eased to 2.4%, also missing expectations. At the ECB’s Sintra Forum, Lagarde noted that risks to euro-area inflation and growth had diminished, citing lower energy price pressures from the US-Iran peace deal.

The euro rose toward $1.15, rebounding from recent one-year lows as the US dollar weakened after a much softer-than-expected US jobs report. The US economy added just 57,000 jobs last month, well below forecasts, while the unemployment rate unexpectedly fell to 4.2% as many people left the labor force. The euro's gains were limited by weaker-than-expected Eurozone inflation and dovish remarks from ECB President Christine Lagarde. Data showed headline inflation slowed to 2.8% in June from 3.2% in May, below expectations, while core inflation eased to 2.4%, also missing forecasts. Speaking at the ECB's Sintra Forum, Lagarde said risks to euro-area inflation and growth had diminished, reflecting lower energy price pressures since the ECB's rate hike three weeks ago. Meanwhile, optimism over indirect US-Iran talks continued to support lower oil prices, with Qatar announcing that a new round of negotiations would be scheduled soon.

The euro rebounded to $1.14 but remained near one-year lows against the dollar and pound, pressured by softer-than-expected Eurozone inflation and dovish remarks from ECB President Christine Lagarde. Wednesday’s data showed headline inflation falling to 2.8% in June from 3.2% in May, below expectations of 3.0%, while the core rate dropped to 2.4%, also under forecasts of 2.6%. At the ECB’s Sintra Forum, Lagarde noted that risks to euro-area inflation and growth have diminished. This shift follows the ECB’s decision three weeks earlier to become the first G7 central bank to hike rates after the Iran war, citing concerns over inflation spreading. Since then, hopes for a US-Iran peace accord have sharply lowered oil prices, removing a key inflation driver. Elsewhere, traders welcomed progress in indirect US-Iran talks, with Qatar announcing the next meeting would be scheduled as soon as possible. Oil prices continued to fall as more shipments passed through the Strait of Hormuz.