US Dollar Holds Steady Ahead of Crucial US Jobs Data. Forecast as of 05.09.2025
The question of whether the Fed will cut interest rates at its next meeting has already been practically answered. However, employment data may give markets a hint about what will happen next. How low will the Fed reduce the rate in 2025? Let’s discuss this topic and make a trading plan for the EURUSD pair.
The article covers the following subjects:
Major Takeaways
- The ECB has ended its monetary expansion cycle.
- The labor market will allow the Fed to choose its course.
- Divergence is key to the EURUSD pair’s trajectory.
- Long positions can be opened if the EURUSD pair breaks through 1.1685.
Daily US Dollar Fundamental Forecast
People make decisions, but it is data that informs these decisions. Investors are expecting a cut in the federal funds rate in September, but August’s US employment statistics will allow them to evaluate future prospects. Will borrowing costs fall by 50 basis points at the next FOMC meeting? How low will the US regulator reduce the interest rate? The answers to these questions will determine the fate of the EURUSD pair.
Divergence in monetary policy will play a pivotal role in determining the future of this major currency pair. In the case of the ECB, the situation is clear. The most recent Bloomberg survey of experts indicates the EU regulator has finished its monetary expansion cycle. The deposit rate will likely remain at 2% until at least the end of 2026, with only 25% of respondents anticipating rate hikes. According to Credit Agricole, there is a 75 basis point increase anticipated in borrowing costs by September 2026.
Expectations for ECB Interest Rate
Source: Bloomberg.
As for the Fed, the situation is not as clear. Soaring inflation and a cooling labor market have placed the central bank in a defensive position. It is attempting to predict the optimal direction for its future policy. Based on Jerome Powell’s speech in Jackson Hole, it appears that a decision has been reached. The Fed places a high priority on employment. Between May and July, US employment showed the worst growth rate in 15 years, with the exception of the period during the pandemic. According to Bloomberg, nonfarm payrolls are expected to increase by 75,000 in August. The indicator is poised to fall below 100,000 for the fourth time in a row, a development that has not occurred since the onset of the pandemic.
US Nonfarm Payrolls
Source: Bloomberg.
Against this backdrop, the Fed is ready to cut rates. The central bank expects that the weakness of the labor market will sooner or later offset tariff-related price increases. In other words, the surge in CPI will be short-lived. The question is how aggressive the monetary expansion cycle will be. How low and quickly will borrowing costs fall?
Perhaps the question is wrongly phrased. It would be better to ask whether the Fed’s rate cut will help the US economy. The fall in labor force participation to its lowest level since 1977, excluding the pandemic, suggests that Americans do not want to work. Their place was previously taken by immigrants, but Donald Trump’s policy of expelling them from the US is cooling the labor market.
You can lead a horse to water, but you cannot make it drink. Lower interest rates will not encourage Americans to work harder. Employment will continue to slow, creating a vicious circle for the US dollar. The interest rate differential between the Fed and the ECB is narrowing, and the EURUSD pair is rising. This is a long-term trend, but any short-term event can change the short-term outlook.
Daily EURUSD Trading Plan
Unexpectedly strong nonfarm payrolls of 150,000 or more will deal a blow to EURUSD bulls, allowing bears to drag the quotes towards 1.16 and 1.155. Figures close to forecasts will give a signal to increase long trades formed on the pullback on the EURUSD pair. This includes breakouts of the resistance levels of 1.1685, 1.17, and 1.1715.
This forecast is based on the analysis of fundamental factors, including official statements from financial institutions and regulators, various geopolitical and economic developments, and statistical data. Historical market data are also considered.
Price chart of EURUSD in real time mode
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