The pause in selling gives traders room to assess whether the labor-market deterioration is severe enough to force the Federal Reserve into a more dovish posture, or simply a soft patch in an otherwise resilient expansion.
Labor Data Miss Reshapes Rate Path
The Bureau of Labor Statistics reported that Nonfarm Payrolls contracted by 23,000 in July, a sharp divergence from the 80,000 increase markets had priced. June’s originally reported 57,000 gain was revised down to just 20,000, compounding the bearish signal. The USD Index reacted immediately, sliding to near 99.40 — its weakest print since mid-June.
Strategists at BNY argue the data has materially shifted market dynamics. “The weaker US labor-market signal has pulled down real-rate expectations, extended the Dollar decline and reopened a window for duration and risk assets,” they wrote. BNY added that the report left the market pricing “less than a 50% chance” of a September hike, a stark reversal from earlier positioning.
Major Pairs Find Footing
EUR/USD touched a seven-week high of 1.1580 on Friday before settling near 1.1550 in Monday’s European session. GBP/USD held around 1.3500 after a 0.3% advance Friday. USD/JPY recovered toward 158.50 after closing lower at the end of last week, while AUD/USD traded sideways above 0.7050 ahead of the Reserve Bank of Australia’s Tuesday policy decision.
Gold extended its momentum from a 7% weekly surge — the largest since late January — consolidating above $4,300 in the European morning. Crude oil edged higher, with West Texas Intermediate near $77 a barrel, up about 1% on the day, as geopolitical tensions around the Strait of Hormuz kept a floor under prices.
Iran Tensions Add Oil Risk Premium
President Donald Trump said over the weekend that the US is “semi-negotiating” with Tehran and would wait for economic pressure on Iran to mount. Tehran rejected the framing, denying active negotiations and submitting a list of demands for reopening the Strait of Hormuz. The standoff leaves energy markets exposed to supply-disruption risk, a tailwind for crude and a complicating factor for dollar sentiment.
RBA Decision Looms Over Asian Session
The Reserve Bank of Australia is widely expected to hold its cash rate at 4.35% for a second consecutive meeting when it convenes Tuesday, while retaining a tightening bias. Analysts at Brown Brothers Harriman expect policymakers to reiterate readiness to “increase the cash rate further if needed,” given inflation continues to exceed 3.0%.
BBH note that the RBA’s August Statement on Monetary Policy will offer a clearer read on how officials balance persistent price pressures against a softer domestic growth backdrop. A hawkish hold could lend fresh support to AUD/USD, which has been drifting in a tight range as traders await directional catalysts.
What Happens Next
With Fed September hike odds now below 50%, the dollar’s near-term trajectory hinges on incoming data — particularly inflation prints and the next jobs report — that either confirm or contradict the labor-market weakness. Sentix investor confidence data for August, due Monday, offers the first European-side read on sentiment after the US payrolls shock.
The RBA decision on Tuesday will test whether global central banks stay hawkish even as the Fed’s tightening cycle appears to be losing momentum. A surprise dovish tilt from Sydney could pressure the Australian dollar and reinforce the broader theme of slowing global rate hikes. Meanwhile, any escalation between Washington and Tehran around the Strait of Hormuz would inject fresh volatility into crude and the commodity-linked currencies that track it.
— Hiro Tanaka, markets desk, AXO News