August 04, 2025

“The huge downward revisions to the US jobs data sent shockwaves through markets on Friday, weakening the dollar by nearly 2% and boosting bets on rate cuts from the Federal Reserve. Trump has a role to fill at the Fed, meanwhile, and the Bank of England meets on Thursday.”

Tim Hallinan – Trading Director

USD

Friday’s non-farm payrolls report was so poor that the dollar fell 1.7%, as the narrative of US economic resilience was turned on its head. Only hours before the report, the Fed’s Waller and Bowman cited a vulnerable labour market as the reason for their dissents at the decision to hold last week. These views were validated by the payrolls report – while the 73K figure for July was not ridiculously far off the 104K consensus, the figure that spooked markets was the 258K in downward revisions to previous months, which took the May and June numbers down to 19K and 14K respectively. That is well below estimates for the ‘replacement rate’ that keeps unemployment steady. With a solid jobs market no longer the base case, markets quickly moved to price an 80+% chance of a September rate cut and 60bps in total cuts before the end of the year.

Trump was so unhappy that he immediately fired the head of the Bureau of Labour Statistics, accusing her of manipulating data to flatter Biden and embarrass Trump. US economic data is the gold standard, and a president’s attempts to influence it for his gain is not good for US markets. Also, the BLS chief is not the only role he has to fill this week. Fed governor Kugler resigned on Friday, opening up a spot on the FOMC for Trump to fill with someone with a more dovish attitude. That would up the pressure on Powell to cut rates, and for the dollar to move lower.

GBP

Sterling followed a familiar Trump 2.0 playbook after non-farms, riding the weaker dollar wave whilst underperforming the safer euro. This week in the UK is all about the Bank of England. The market is 97% sure that the outcome will be a rate cut, but there is likely to be a high level of disagreement among policymakers. With the BoE stuck between both high inflation and rising job losses, the consensus is for another three-way vote split. The known doves – Dhingra and Taylor – could be eyeing a 50bp cut to fend off mounting job losses, and hawks like Catherine Mann (usually) would lean towards holding steady. The ‘core’ of the MPC is likely to be in the middle with a 25bp cut.

EUR

Last week was a rollercoaster for the euro. Up until Friday morning, EURUSD was heading for its worst week since September 2022 with a 2.8% drop. After non-farms, it had recovered by 1.7%. The USD leg is in total control, and the dollar’s correction looks done for the near term. There are a few data points his week – Sentix investor confidence, PPI, and retail sales – but the bulk of uncertainty is in the US, so investors will be looking there.

Markets

The equity markets reacted poorly to the news that the US labour market is significantly weaker than expected. The S&P 500 fell 1.6% and the Euro Stoxx 50 sank more than 2%. The futures market is rebounding somewhat this morning and trimming those losses slightly.

Main Economic Events (All Times CET)

8:30am: Switzerland CPI
9:30am: Switzerland PMIs
10:30am: Eurozone Sentix Investor Confidence
4:00pm: US Factory Orders

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