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Key takeaways

• The US dollar is weakening ahead of the report’s release.
• The market is pricing in no change to US interest rates through the end of the year.
• A weak reading could boost expectations for rate cuts.

USD remains under pressure despite this morning’s headlines, which cast doubt on the sustainability of the ceasefire between the US and Iran. The April NFP report on the US labour market is due to be released at 14:30, and will serve as a significant test for the dollar, which has been losing ground in recent days. The US currency remains under pressure despite this morning’s headlines, which cast doubt on the sustainability of the US-Iran ceasefire.

Latest reading March saw a particularly strong reading. The number of non-farm payrolls far exceeded even the most optimistic expectations, reaching its highest level since December 2024 (178k). In contrast, the unemployment rate (4.3%) and wage growth (3.5%) fell unexpectedly. The reading signalled that the Fed is not forced to cut interest rates hastily, which, given the rapid rise in energy prices, was exceptionally valuable.

Geopolitical context The situation on the geopolitical front remains tense. A glimmer of optimism came from Wednesday’s reports by Axios regarding work on a peace memorandum. Yesterday evening, however, the press was abuzz with speculation about a resumption of military action should a lasting agreement between the US and Iran not be reached before Trump’s visit to China. This is scheduled for 14–15 May.

Monetary policy

The data is of fundamental importance to the Federal Reserve, which has a dual mandate requiring it to focus on both price stability and maximising employment. The markets are undecided as to the direction the FOMC will take in the coming months. The inflation situation is causing growing concern, which led to a significant split within the committee at its last meeting – as many as three of its members opposed the so-called “easing bias”, i.e. the preference for lower interest rates in the medium term. The April inflation reading, due next Tuesday, is expected to show the headline measure rising to 3.7%. However, policymakers will focus primarily on the core measure, wage growth and inflation expectations, as they are unable to exert much influence over inflation driven by supply-side factors, such as rising energy prices. Markets are currently pricing in no change to interest rates until the end of 2026.

A weak reading, suggesting that the labour market situation is deteriorating, moving away from the still relatively safe low fire-low hire status, may signal that the economy will need a monetary stimulus. This is, in any case, consistent with the rather dovish rhetoric presented by Kevin Warsh, who will take the helm of the FOMC from its next meeting. A strong reading could, in turn, help the Committee to focus almost all its attention on the inflation situation, swelling the ranks of the hawks, which already appear to be numerous following the last meeting.

Current data

The most recent data – weekly jobless claims – are particularly noteworthy; a week ago they fell to 189k, the lowest level since 1969, remaining at low levels this week (200k). The ADP data also showed healthy levels (although since the pandemic, their correlation with the NFPs has been significantly weaker). Chart: NFP and ADP data (2015 – 2026)

Source: XTB, 08/05/2026

In today’s session, EUR/USD is strengthening around the 1.17 area, but the move is not driven by a single dominant factor. Instead, it reflects a combination of several parallel impulses, including unchanged policy rates from both the Fed and the ECB, improving sentiment linked to potential de-escalation of tensions around Iran, and stronger-than-expected German industrial data. It is important to stress that the current appreciation looks more like a repricing of expectations than a durable shift in underlying fundamentals.

Source: xStation5

What is shaping EUR/USD price action? Fed on hold, but the market is already pricing rate cuts

The Federal Reserve kept interest rates unchanged, while signalling a gradual slowdown in economic momentum and increasing sensitivity in the labour market. At the same time, inflation in the US is still not fully under control, particularly in services and core inflation, where price pressures remain persistent. Despite this, markets are increasingly pricing in future rate cuts, not as a response to rapidly falling inflation, but rather as a reaction to a potential weakening in economic activity. This scenario reduces the attractiveness of the US dollar and gradually supports EUR/USD through expectations of a narrowing interest rate differential.

The ECB remains cautious, with no automatic path to hikes

The European Central Bank also left rates unchanged, maintaining a cautious and data-dependent communication stance. While some forecasts still allow for further tightening, the dominant view remains one of stabilisation and inflation-driven decisions rather than an aggressive hiking cycle. At the same time, improving real economy data, especially from Germany, is limiting earlier expectations of a deeper slowdown in the euro area, supporting the single currency through the activity channel rather than monetary policy expectations alone.

Geopolitics and hopes for an Iran agreement

Reports of potential de-escalation in tensions surrounding Iran are improving global risk sentiment. A decline in the geopolitical risk premium reduces demand for the US dollar as a traditional safe-haven currency, while benefiting risk-sensitive assets such as the euro. In addition, a potential easing of tensions in the Middle East lowers pressure on energy prices, which in the medium term could reduce inflationary pressures and strengthen expectations of a more accommodative Fed stance.

Germany surprises to the upside, lifting European sentiment

Stronger-than-expected German industrial data is an important element of today’s market picture. Against the backdrop of earlier concerns about stagnation in Europe, this release is helping stabilise perceptions of the euro area. As a result, the euro is increasingly seen not only through the lens of cyclical weakness, but also as a relatively stable alternative to the US dollar, particularly in an environment of shifting monetary policy expectations.

What else is influencing the market in the background

Beyond central bank decisions and macroeconomic data, the key driver remains the pace of change in market expectations regarding future Fed and ECB policy. The market is currently in a repricing phase rather than a full economic cycle shift. This makes EUR/USD particularly sensitive to incoming data and central bank communication that could either confirm or challenge the scenario of faster US easing combined with relatively stable policy in Europe. In such an environment, even moderately positive European data can support the euro in the short term, but the sustainability of the trend will ultimately depend on whether the Fed actually moves towards more decisive monetary easing.