The latest labor market report gave traders not a single reason to talk about Fed rate hikes. This is precisely the verdict delivered by market participants, sending the EUR/USD pair above the 1,147 mark. June’s Non-Farm Payrolls (NFP) showed employment growth of just 57,000, which was half as much as the consensus forecast of 115,000. Even the formal drop in the unemployment rate to 4.2% couldn’t save the day: the decline in the labor force is so significant that the unemployment rate could keep falling even with negative NFP readings.
Naturally, the Federal Reserve never makes fateful decisions based on just a single monthly release. Yes, the data for April and May were revised downward by 74,000 jobs, but on average since the beginning of the year, the US economy has been creating 92,000 new positions. This is a notable positive shift compared to the second half of 2025, when the monthly figure went negative by 8,000, which was the very trigger for launching the rate-cutting cycle.
Clearly, the June figures do not give the green light for monetary tightening. Nevertheless, the positive inflation dynamics in the first half of the year give the Fed carte blanche to do what Kevin Warsh keeps harping on: shift the focus exclusively to fighting price growth. As San Francisco Fed President Mary Daly noted, consumer prices will gradually decelerate. The effects of tariff wars and the Middle East conflict are temporary, and monetary policy itself remains restrictive.
This is exactly the scenario I described following Kevin Warsh’s first press conference as Fed Chair. The central bank is not going to cut rates, while the markets, as always, have jumped the gun. Tough rhetoric is needed by the new chairman to build consensus within the FOMC, and statements from the White House only confirm this theory.
Donald Trump is already openly stating that Warsh is facing a “hostile Committee” that is sabotaging necessary rate cuts. His chief economic advisor, Kevin Hassett, goes so far as to suggest that FOMC members might vote to raise the federal funds rate purely out of spite, just to spite the president. The White House clearly needs a new scapegoat: if this role was previously assigned to Jerome Powell, now the entire regulatory team is under fire.
Be that as it may, the derivatives market’s appetite for tight monetary policy is melting before our eyes, which naturally hits the US dollar exchange rate. An additional factor putting pressure on the dollar could be the stabilization of the global geopolitical situation. It was precisely Trump’s tariff threats and the escalation in the Middle East that previously fueled demand for the greenback as a safe-haven asset. The cooling of these conflicts will become a powerful catalyst for a new round of euro appreciation.
