Danske Research Team reports that EUR/USD fell sharply on Friday after a stronger-than-expected US jobs report boosted expectations for further Federal Reserve tightening. The move coincided with a rise in US Treasury yields and weaker risk sentiment. The bank also flags that markets now price around 40 basis points of cumulative Fed hikes toward 2027, ahead of key US CPI and ECB events.

Dollar strength pressures Euro pair lower

"In the US, Friday's May jobs report came in stronger than expected. Nonfarm payrolls rose 172k (Danske: +110k, cons.: +85k) and the unemployment rate printed at 4.3% (Danske: 4.2%, cons.: 4.3%). "

"Overall, the report revealed no major weak spots, which led markets to increase the probability of Fed hikes. In the immediate market reaction, EUR/USD moved lower and UST yields rose, with markets now pricing around 40bp of cumulative Fed hikes towards 2027."

"EUR/USD plunged towards 1.15 on Friday following the strong US jobs report and yields rose. US yields continue to move higher in overnight trading with 2Y UST now at 4.19%, around 15bp higher compared to before the jobs report was released."

"The data calendar is thin for the day, but later this week focus will be on the US CPI report (Wed) and the ECB (Thu). A hike to 2.25% from the ECB is widely expected and priced in, but we do not expect Lagarde to pre-commit to further hikes."

"In the euro area, the June Sentix investor confidence index is released today. Markets look for an improvement to -14.6 (May: -16.4), extending last month's positive momentum, although sentiment remains pessimistic amid rising inflation and a weak growth outlook."

(This article was created with the help of an Artificial Intelligence tool and reviewed by an editor.)