The Dollar’s decline paused on Friday as trading quietened ahead of the US Independence Day holiday, but the bigger story is not the day’s price action. It is that the foreign exchange market is beginning to move beyond the one-dimensional narrative that dominated much of the second quarter. For weeks, almost every major currency traded as a reflection of one question: would the Federal Reserve tighten policy further? After this week’s payrolls report, that monopoly is beginning to break.
Thursday’s employment data did not paint the picture of a rapidly deteriorating labor market. Unemployment unexpectedly fell and wage growth remained firm. Yet payroll growth slowed much more than anticipated, reinforcing the view that the labor market is cooling rather than overheating. Combined with the sharp decline in oil prices following the US-Iran ceasefire, investors believe the Fed has time on its side. Futures markets have pared expectations for a September rate hike, while Treasury yields around 4.5% suggest markets are adjusting to a longer pause rather than pricing an imminent easing cycle.
That change in Fed expectations has not produced a classic “risk-on” response. Instead, it has encouraged investors to differentiate between sectors and currencies. The Dow Jones Industrial Average reached fresh record highs, while the NASDAQ retreated after reports that Meta Platforms intends to sell excess AI computing capacity fuelled concerns that the AI infrastructure spending boom could be approaching saturation. Rather than lifting all growth stocks, lower rate expectations triggered a rotation away from semiconductor names and into other parts of the market.
The same pattern is emerging in foreign exchange. Dollar is the week’s weakest major currency, but selling has been selective rather than broad-based. Sterling continues to outperform as markets focus on the Bank of England’s relatively restrictive policy outlook. Euro remains pressured by rapidly fading expectations of further ECB tightening after softer inflation data. Yen, meanwhile, has developed a story of its own. Reports that Tokyo is shifting toward surprise intervention rather than publicly defending exchange-rate levels have fundamentally changed how traders assess intervention risk.
That message was reinforced on Friday when Finance Minister Satsuki Katayama stressed that Japan’s stance “has not changed at all” and that authorities “will respond appropriately at any time as needed.” He also highlighted that Tokyo remains in regular contact with Washington on foreign exchange matters despite the US holiday. Whether intervention actually took place this week may ultimately matter less than the shift in strategy itself.
Markets are entering a period where local policy paths, intervention risks and domestic fundamentals drive currency performance. The Dollar remains central to global markets, but it is not the only story.
UK Services PMI Falls to Lowest Since 2023 as Demand Weakens Despite Cooling Cost Pressures
UK Services PMI fell to its lowest level since January 2023 in June as new orders declined for a fourth straight month, although easing cost pressures offered some relief.. Read More.
Eurozone PMI Services Stabilize While Cooling Inflation Supports ECB Pause
Lower oil prices are reshaping the Eurozone outlook. Discover why June’s PMI survey points to stabilizing growth and fewer arguments for another ECB rate hike. Read More.
Japan Services PMI Rebounds While Rising Costs Keep Inflation Pressures Alive
Japan’s Services PMI rebounded to 52.2 in June, lifting the Composite PMI to a three-month high as domestic demand strengthened despite weaker export business and persistent inflation pressures. Read More.
EUR/USD Daily Outlook
EUR/USD is staying below 1.1499 support turned resistance. Intraday bias remains neutral, and further decline is in favor. On the downside, break of 1.1323 will resume the fall from 1.2081 to 100% projection of 1.2081 to 1.1408 from 1.1848 at 1.1175. However, decisive break of 1.1499 will turn bias back to the upside for 55 D EMA (now at 1.1559) and above.
In the bigger picture, focus is back on 38.2% retracement of 1.0176 to 1.2081 at 1.1353. Decisive break there will revive the case of medium term bearish trend reversal after rejection by 1.2 key cluster resistance level. Further fall should be seen to 61.8% retracement at 1.0904. Nevertheless, strong rebound from 1.1353, followed by break of 1.1621 resistance, will retain medium term bullishness.
