EUR/USD Rebounds as US Dollar Weakens Ahead of US-China Trade Talks and CPI Data
EUR/USD Rises as Focus Shifts from US Jobs Data to US-China Trade Talks and Inflation Outlook
The euro is starting the week with a modest recovery against the US dollar, regaining some ground after Friday’s sharp drop triggered by a surprisingly strong US Nonfarm Payrolls (NFP) report. EUR/USD has ticked up to around 1.1415 in Monday’s early European session, following Friday’s low of 1.1370.
The upbeat US employment report initially boosted the dollar, as markets reacted to the better-than-expected job creation in May. However, the greenback’s momentum has waned, with investor focus now pivoting toward fresh trade negotiations between the United States and China, along with Wednesday’s crucial US inflation data.
Strong US Jobs Report Offers Only Temporary USD Boost
On Friday, the US Bureau of Labor Statistics (BSL) reported robust job creation in May, surprising markets that were bracing for weakness following earlier disappointing data, including a soft ADP employment report and sluggish ISM manufacturing and services figures. While the unemployment rate held steady and wage growth remained unchanged, the labor market appeared resilient enough to push the dollar broadly higher—at least temporarily.
Despite the initial reaction, analysts noted signs that the labor market is gradually cooling. Revisions to the prior two months’ NFP figures pointed to a softer trend, tempering expectations for any imminent rate hikes by the Federal Reserve.
US-China Trade Talks Take Center Stage
Investor attention is now turning away from the jobs data and toward geopolitical developments, specifically the trade meeting between US and Chinese representatives taking place in London on Monday. A more cautious stance is emerging, with traders reducing long positions in the dollar amid growing optimism that the world’s two largest economies can advance toward a more normalized trade relationship.
US President Donald Trump added fuel to that optimism over the weekend, expressing confidence that negotiations will go “very well.” His comments followed a phone call with Chinese President Xi Jinping last week, which appeared to ease tensions after months of uncertainty.
The positive sentiment is helping the euro rebound as markets adopt a mild risk-on tone, trimming the dollar’s gains and lifting risk-sensitive assets.
All Eyes on US CPI and Fed Outlook
Wednesday’s US Consumer Price Index (CPI) data is now the week’s central focus. Investors are eager to see whether President Trump’s recent tariff hikes will start to show up in inflation figures. A hot inflation print could revive expectations for tighter monetary policy later this year, while a weaker reading may reinforce the view that the Fed will remain on hold until September or beyond.
With the Fed currently in its pre-meeting blackout period, CPI will be the last major input before next week’s FOMC decision—widely anticipated to be a non-event following the solid NFP report.
ECB and BoJ Add to Market Complexity
Adding to the day’s narrative, European Central Bank (ECB) policymaker Peter Kazimir hinted that the ECB may be near the end of its easing cycle. While acknowledging downside risks to growth, Kazimir also warned against ignoring upside inflation pressures. He stressed the need to keep all options open, with summer data guiding future decisions. His comments may lend some underlying support to the euro if incoming data aligns with this view.
In Asia, reports surfaced that Japan’s Ministry of Finance is considering buying back super-long government bonds. While no immediate decision has been made, this development has strengthened the Japanese yen, pushing USD/JPY lower by 0.56% to around 144.04.
Key Takeaways:
- EUR/USD recovery: The euro is rebounding modestly to 1.1415 after Friday’s USD-driven drop post-NFP.
- NFP recap: US added more jobs than expected in May, but revisions and flat wages hint at cooling momentum.
- USD pullback: DXY retreats below 99.00 as investor focus shifts from jobs data to trade and inflation outlook.
- US-China talks: Optimism surrounding today’s London meeting is supporting mild risk-on sentiment.
- CPI in focus: Wednesday’s US inflation print will shape expectations for Fed policy into the fall.
- ECB tone shifts: Kazimir suggests ECB easing may be over, adding a hawkish tilt to the euro narrative.
- JPY gains: Yen rallies on reports Japan may repurchase super-long bonds, pulling USD/JPY lower.
As the week unfolds, markets will remain highly sensitive to both macroeconomic signals and geopolitical developments. A clear outcome from the US-China trade talks and meaningful surprises in US CPI could sharply alter the current cautious optimism.
For similar High-Conviction GBPUSD Trade Ideas on our forex page.
Please visit our Disclaimer page.
Disclaimer
Information on these pages contains forward-looking statements that involve risks and uncertainties. Markets and instruments profiled on this page are for informational purposes only and should not in any way come across as a recommendation to buy or sell in these assets.
TerraBullMarkets.com does not in any way guarantee that this information is free from mistakes, errors, or material misstatements. It also does not guarantee that this information is of a timely nature. Investing in Open Markets or any financial instrument involves a great deal of risk, including the loss of all or a portion of your investment, as well as emotional distress.
All risks, losses and costs associated with investing, including total loss of principal, are your responsibility. The views and opinions expressed in this article are those of the authors and do not necessarily reflect the official policy or position of TerraBullMarkets.com nor any of its advertisers. The author will not be held responsible for information that is found at the end of links posted on this page.
TerraBullMarkets.com and the author do not provide personalized recommendations. The author makes no representations as to the accuracy, completeness, or suitability of this information. TerraBullMarkets.com and the author will not be liable for any errors, omissions or any losses, injuries or damages arising from this information and its display or use. Errors and omissions excepted.
The author and TerraBullMarkets.com are not registered investment advisors and nothing in this article is intended to be investment advice.
