The dollar NFP outlook is the dominant question for currency markets this week, with the greenback having lost ground against most major peers as traders scaled back expectations for two Federal Reserve (the Fed, the US central bank) rate rises before year-end. Friday’s non-farm payrolls (NFP) report (which measures how many jobs the US economy added outside the farming sector) will either reinforce that retreat or push the dollar back.
Geopolitics added an extra layer earlier this week. News that Iran and Oman had agreed to establish a shipping corridor through the Strait of Hormuz weighed on oil prices and nudged investors toward riskier assets, softening demand for the dollar as a safe haven. Traders are also factoring in a possible lull in Gulf hostilities during August and a tentative resumption of US-Iran talks.
Fed Expectations: Where Markets Stand
The CME Group FedWatch Tool, which derives rate-hike probabilities from 30-day Fed funds futures prices, shows roughly 45% of market participants expecting just one hike between now and the end of 2026. The probability of that single hike arriving next month has slipped to around 55% over the past week.
June’s annual headline inflation came in well below expectations, easing pressure on the Fed to act quickly. GDP and labour-market readings have been decent without being spectacular. Political calls for rate cuts remain a background factor, though they have not been centre-stage of late.
July’s NFP report, which carried June’s payrolls data, printed at 57,000, roughly half the market consensus. That disappointed dollar bulls, though a single weak reading rarely drives a lasting move beyond a few days. The figure also remained comfortably above the 12-month average. Unemployment fell unexpectedly in June, a modestly supportive sign for the labour market, even if the overall economic picture does not clearly point to a sustained downward trend in joblessness from an already-low base.
A stronger-than-expected print for July’s payrolls on Friday would revive the two-hike scenario, likely pushing the dollar higher. Investors should also keep an eye on 12 August’s inflation release: energy costs rose during the prior month and could push the annual headline figure above the current consensus of 3.4%. A combination of a strong NFP and firmer inflation would materially raise the odds of the Fed tightening twice before year-end.
Dollar NFP Outlook Reflected in the EUR/USD Chart
Euro-dollar has recovered since late last month, trading around $1.155 as the most aggressive Fed-hike scenarios lost traction and Gulf tensions eased. Sentiment in the eurozone also got a lift from German factory orders on 6 August, which beat expectations. The European Central Bank (ECB) is itself expected to deliver one hike by year-end, with roughly a 40% chance of two.
Technically, the 100-day simple moving average (SMA, the average closing price over the past 100 sessions) sits just below $1.157 and acts as the immediate resistance. Above that, the 23.6% weekly Fibonacci retracement level lies near $1.16. The slow stochastic oscillator (a momentum indicator running from 0 to 100) is signalling buying saturation at current levels, meaning an upward spike on a weak NFP may not hold for long.
A payrolls number broadly in line with forecasts could pull the pair back toward $1.15. If both the NFP and August inflation surprise to the upside, the confluence of the 20- and 50-day SMAs around $1.145 becomes the more likely near-term destination.
USD/JPY: Stabilising After the Largest Intervention in Decades
Dollar-yen has steadied around ¥157.50 following a co-ordinated US-Japan currency intervention described by officials as the largest such operation in decades. Before the authorities stepped in, the pair was trading near 164 yen per dollar; it subsequently fell to around 155, according to the Jerusalem Post. Bank of Japan settlement data cited in the same report suggested Tokyo may have deployed as much as $58.97 billion on 30 July alone, with Japanese and US officials publicly confirming the joint operation on 3 August.
The mechanism on the US side was unusual: the Federal Reserve Bank of New York, acting for the US Treasury, purchased yen using euros rather than selling dollars directly. Monthly intervention data is published by Japan’s Ministry of Finance, which confirms Japan spent more than ¥5 trillion on 31 July supporting the yen.
The Bank of Japan’s (BoJ) path toward further hikes remains uncertain: inflation is below target and GDP growth has been subdued. With the Fed also seen as less likely to raise rates twice, the fundamental case for a renewed push toward ¥160 has weakened for now, even if the underlying uptrend is still intact.
The 100- and 200-day SMAs represent dynamic resistance levels between current prices and ¥160. The slow stochastic and Bollinger Bands both show oversold conditions, consistent with an ongoing bounce. A candlestick on 3 August showed clear rejection of a move below ¥157, and a sustained break below that floor would most likely require both a weak NFP on Friday and softer inflation data the following week.
Any fresh intervention by either government would change the picture quickly. Friday’s payrolls number is the first binary trigger to watch.
