Negotiations aimed at normalizing shipping through the Strait of Hormuz have reached a deadlock. Instead of seeking compromises, both sides are issuing counter-ultimatums: Iran is insisting on the withdrawal of US and Israeli vessels from the strait’s waters and the imposition of transit fees for “unfriendly states.” Mediators express serious doubts that Tehran’s authorized representatives can guarantee compliance with any potential agreement with Washington. Markets share this skepticism: oil prices and US Treasury yields are climbing, triggering the sharpest single-day decline for the EUR/USD pair in the past two weeks.
Kevin Warsh’s strategy, which implies the abandonment of forward guidance, is forcing market participants to form expectations solely based on macroeconomic data. Ahead of the release of the July employment and inflation reports, this dynamic is leading to a noticeable spike in US dollar volatility. Investors are bracing for a period of heightened turbulence.
A consensus has formed in the foreign exchange market regarding the asymmetric reaction of EUR/USD to US labor market statistics. Historically, the Fed has shown greater tolerance for strong macroeconomic indicators, preferring to react actively only to signs of economic weakness. Therefore, disappointing Nonfarm Payrolls (NFP) data will, with high probability, act as a catalyst for a rally in the major currency pair. Conversely, robust employment figures are unlikely to trigger massive sell-offs of the euro.
The key factor will be the impact of this release on market expectations regarding Fed monetary policy tightening in September. The current implied probability of a rate hike stands at 54%. If this figure drops below the 50% threshold, the US dollar will face severe downward pressure.
However, fresh statistics point to the underlying resilience of the labor market, reducing the likelihood of such a dovish scenario. According to the consulting firm Challenger, Gray & Christmas, layoffs in 2026 have decreased by 41% year-over-year, while hiring has increased by 25%. Initial jobless claims have remained below the psychologically significant threshold of 200,000 for the third consecutive week—the longest positive streak since 1969. Furthermore, labor productivity accelerated from 0.8% to 1.4% in the second quarter, surpassing all but one of the forecasts by Bloomberg analysts.
The combination of these factors underscores the structural strength of the labor market, which remains capable of generating inflationary pressure. St. Louis Fed President Alberto Musalem has clearly outlined the regulator’s stance: the Fed cannot afford to tolerate inflation persisting above the 2% target for the sake of hypothetical future productivity gains.
Market optimism regarding the free movement of cargo through the Strait of Hormuz could quickly dissipate. Tehran’s demands remain excessively rigid, a reality confirmed by Brent crude reverting to the $80–$90 per barrel range. The US dollar is beginning to reclaim lost ground, but its ultimate trajectory will be dictated by the upcoming July employment and inflation data.
The consensus forecast expects NFP growth of 80,000 jobs. A significant beat of this figure will, in all likelihood, drive EUR/USD lower toward the support level at 1.1470, creating technical grounds for opening short positions. Conversely, a weak employment report will serve as a clear signal to build long positions in the euro.
