The euro climbed against a sliding dollar after Federal Reserve Governor Christopher Waller struck a dovish tone, cutting the market-implied odds of a September rate hike. Yen strength and a widening US trade deficit added further pressure on the greenback, leaving Friday's US labour market report as the next big catalyst for direction.
EUR/USD rose to 1.1627 as the dollar extended a sharp slide that began the previous session. The move followed fresh dovish signals from a Federal Reserve official, prompting traders to scale back bets on further tightening.
Waller's Dovish Tilt Cuts Rate-Hike Odds
Federal Reserve Governor Christopher Waller said he would support keeping rates unchanged if price pressures continue to ease, adding that the Fed's next decision will depend largely on August inflation data due next week. Markets now put the probability of a September rate hike at approximately 50%, down from around 63% the previous day.
The dollar found no relief from a rise in ISM services sector activity to a six-month high, with the USD index still falling as Treasury yields peaked. Pressure also came from a US trade deficit that widened to its highest level since the start of 2025.
Yen Strength Complicates the Picture
The yen's sharp appreciation has added to dollar weakness, with investors weighing the risk of currency intervention and the chance of more aggressive Bank of Japan tightening before year-end. An analysis of the Bank of Japan's accounts shows no question of any currency intervention, even as speculators were spooked by rumors of an overnight 50bp hike in September. However, a Bloomberg insider suggests the Governing Board will raise it by only 25bp.
Hedge funds that spent two weeks building short yen positions are now unwinding them just as aggressively. According to JPMorgan, if USD/JPY consolidates below 155, speculators may further cut their net short yen positions of ¥16–17 trillion, pushing the pair toward the 146–149 range. Nomura Securities, meanwhile, sees an alternative path: tightening at three consecutive Board meetings that would bring the key rate to 1.75% by the end of 2026.
Friday's Jobs Report Is the Next Catalyst
Non-farm payrolls are expected to rise by 55K in August, with the unemployment rate forecast to hold at 4.1%, though the wide range of analyst forecasts raises the risk of a sizable surprise. Friday's US labour market report will therefore provide another important signal for Fed policy.
Technical Levels to Watch
On the four-hour chart, EUR/USD is moving lower toward 1.1611, where a consolidation range is forming. A move higher to 1.1657 is possible before a further decline to 1.1555, with the MACD signal line below zero and pointing down. On the one-hour chart, the pair has completed a downward move to 1.1625, and a move lower to 1.1611 is expected today, followed by a rebound to 1.1657, per the Stochastic oscillator's signal line below 50 and falling toward 20.
Friday's labour data will decide whether that bounce holds or the pair resumes its broader bearish trend.
Sources: ActionForex – EUR/USD Awaits US Labour Market Data, ActionForex – The Dollar Has Staked Its Fate on the NFP
Trading involves risk.
Risk Disclaimer
