Euro stuck in the range, waiting for a catalyst
The ADP report’s disappointment was not enough to drive EUR/USD above 1.17, leaving the pair confined to the 1.16 to 1.17 range that has held throughout August. A decisive break will likely require a stronger trigger, with today’s non-farm payrolls the obvious candidate.
EUR/USD is trading about 0.2% higher this morning, retracing part of yesterday’s fall. That decline followed the weak ADP numbers but was partly offset by a surprisingly strong ISM Services survey in the US. Meanwhile, eurozone retail sales for July fell 0.5% month on month, well below expectations of a 0.2% drop, reversing June’s gain of 0.6%. Annual sales rose 2.2%, missing forecasts and slowing from 3.5% previously. These figures underscore concerns about household demand just as inflation stays slightly above the ECB’s target.
The broader backdrop has also shifted. Earlier in the summer, sentiment was firmly on the euro’s side. Now, disappointing trade talks, political uncertainty, and higher bond yields have eroded that advantage. The single currency is increasingly reliant on negative US surprises to reclaim momentum and break free from its current range.
Sterling faces data risk
The pound extended gains yesterday against most G10 peers, with the strongest moves against the Scandis and commodity currencies, though it lagged against the US dollar. On a weekly basis, sterling is up only versus traditional havens such as the Swiss franc and Japanese yen, a pattern that highlights its fragile position.
GBP/USD failed to break back into the upward trend channel established earlier this year, stalling at the 100-day moving average. The bounce from 1.31 in mid-August provided temporary support, but conviction remains low. Technically the bias still leans negative, although the 21-day moving average is edging higher and nearing a potential crossover with the 50-day, which could mark a shift.
The immediate focus is today’s US payrolls release. Overnight implied volatility in GBP/USD spiked, reflecting familiar pre-payroll nerves. A weaker-than-expected report could lift the pair through 1.3550 resistance, while a stronger reading risks pushing it below 1.34 with 1.32 as the next downside target. Beyond the near-term catalyst, sterling remains under pressure from a stagnant domestic economy and growing fiscal concerns, even as UK yields continue to stand out as among the highest in the G10.
Labour market weakness sharpens Fed focus
This week’s US releases have set the stage for a high-stakes jobs report. ADP recorded only 54,000 private payroll gains in August, far below expectations, while the Federal Reserve’s Beige Book reported that most districts saw little to no change in employment, with firms increasingly reluctant to hire.
The picture is one of cyclical weakness on the demand side. Businesses are scaling back recruitment as consumer demand softens and uncertainty lingers. At the same time, supply-side shifts are becoming more structural. The Beige Book highlighted headcount reductions through attrition, often encouraged by return-to-office rules and accelerated by automation and AI tools. A shortage of immigrant labour also continues to constrain sectors such as construction.
Together, these developments underline the view that the labour market is losing its inflationary heat. Markets now price in almost a full quarter-point cut at this month’s Fed meeting, with expectations supported by forecasts of a 75,000 rise in non-farm payrolls and a steady unemployment rate.
A weaker-than-expected print today would reinforce that conviction and weigh further on the dollar. Conversely, a stronger surprise would challenge the prevailing cooling narrative and could bring revisions to earlier data into sharper focus, given recent heavy downward adjustments.
