Euro Slips Below $1.16 as Strong US Jobs Data Lifts Dollar

The euro weakened back below $1.16 as stronger-than-expected US employment data boosted the dollar and reinforced expectations for tighter Federal Reserve policy. US nonfarm payrolls increased by 162,000 in August, significantly surpassing market expectations for a 56,000 gain and prompting markets to price in a near 60% probability of a Fed rate hike this month. Attention is now gradually shifting toward the European Central Bank’s September 10 policy meeting. Money markets continue to fully price in a 25-basis-point ECB rate hike to 2.5% next week, while assigning an almost 100% probability that the deposit rate will reach 3% by June 2027. Such pricing implies two additional rate increases by mid-2027. On the economic data front, Germany’s factory orders rose 2.5% in July, slowing from an upwardly revised 3.7% increase in June but comfortably exceeding market expectations for a 0.3% gain.

The euro stabilized just above $1.16 on Friday as investors awaited fresh direction from US employment data due later in the day, while attention gradually shifted towards the European Central Bank’s September 10 meeting. Money markets continue to fully price in a 25-basis-point ECB rate hike to 2.5% next week, while also assigning an almost 100% probability to the deposit rate reaching 3% by June 2027, implying two further rate increases by mid-2027. On the economic data front, Germany’s factory orders rose 2.5% in July, easing from an upwardly revised 3.7% increase in June but comfortably exceeding market expectations of a 0.3% gain. Meanwhile, the dollar remained under pressure following dovish remarks from Federal Reserve Governor Christopher Waller, who said recent data showed signs of disinflation and that, if upcoming figures confirmed the trend, he would favor keeping interest rates unchanged at this month’s policy meeting.

The euro edged back above $1.16, pausing its recent selloff as a sharp rally in the yen weighed on the US dollar and easing oil prices offered some relief. The yen strengthened on growing expectations of a Bank of Japan rate hike and the possibility of official intervention, triggering broad-based dollar weakness. Meanwhile, Brent crude retreated from six-week highs after US President Donald Trump said the renewed US military campaign in Iran would not last long. The euro nevertheless remains near a two-week low amid concerns over energy-driven inflation, higher interest rates and fiscal sustainability in countries including France and the UK. Money markets continue to fully price in a 25-basis-point ECB rate hike to 2.5% next week. Markets are also pricing in an almost 100% probability of a 3% deposit rate by June 2027, implying two further rate increases by mid-2027.