The US dollar is facing challenges after disappointing jobs data. It opened lower against several currencies due to newly imposed tariffs. Market attention has shifted to upcoming US economic reports and Federal Reserve decisions. Last week’s labor report shows ongoing weakness in the job market for Q3. EUR/USD has increased by 0.2%, reaching its highest point since last Monday, close to 1.1700. Much of its decline from late July has been recovered. Meanwhile, USD/JPY has fallen by 0.3% to 146.85, amid confusion regarding Japan’s tariffs, which Japan views as a limit while the US considers them as additional.

Currency Trends Amid Current Market Scenario

In other news, GBP/USD has risen above significant hourly averages, up 0.1% to 1.3370. AUD/USD has climbed 0.3% to 0.6520, moving above 0.6500 for the first time in a week. However, large option expirations at this level could lead to fluctuations. Overall, as the dollar weakens and the short-term trend shifts, focus turns to the upcoming US CPI report. The dollar is under pressure as expectations shift. The weak jobs report from Friday, August 1st, is the main concern now. It showed only +55,000 jobs added, much lower than the expected +150,000, and pushed the unemployment rate up to 4.2%. The market now, via the CME FedWatch Tool, indicates a 75% chance of a Federal Reserve rate cut in September, a big rise from just 40% before the report. This dollar weakness creates a strong opportunity in EUR/USD, which is approaching 1.1700. The European Central Bank’s firm stance against rate cuts, in sharp contrast to the Fed’s dovish shift, strengthens this pair. We’re considering buying call options to gain further upside while managing risk ahead of next week’s US inflation data.

Market Outlook and Strategies

For USD/JPY, the drop below 147.00 is noteworthy. With US 10-year Treasury yields falling back toward 3.85% after the jobs report, the rate advantage the dollar had over the yen is quickly decreasing. This makes shorting the pair or buying put options an appealing strategy for the coming weeks. Strength is also seen in GBP/USD and AUD/USD, both rising against the dollar. The Australian dollar, now above 0.6500, is receiving additional support from better-than-expected manufacturing data out of China earlier this week. However, derivative traders should be cautious about the large AUD/USD options expirations at the 0.6500 level, which could lead to volatility tomorrow. All eyes are on the upcoming US CPI report next week. Another weak inflation reading could confirm an economic slowdown and likely result in a Fed rate cut, pushing the dollar lower. This suggests a strategy for continued dollar weakness, perhaps with limited risk measures like bull call spreads on the Euro, in case of unexpected outcomes. Create your live VT Markets account and start trading now.

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