Euro Remains Range-Bound, Awaiting a Market Catalyst

The euro continues to trade in a tight range, with EUR/USD stuck between 1.16 and 1.17 throughout August. The recent ADP payroll report failed to provide enough momentum to push the pair above 1.17, signalling that a stronger catalyst may be required. Attention now turns to today’s US non-farm payrolls, widely seen as the potential trigger for a decisive move.

This morning, EUR/USD has edged up by around 0.2%, partially recovering from yesterday’s decline. The dip followed the disappointing ADP figures but was offset by a surprisingly robust US ISM Services survey. Meanwhile, eurozone retail sales for July fell 0.5% month-on-month, well below forecasts of a 0.2% decline and reversing June’s 0.6% gain. On an annual basis, retail sales increased by 2.2%, missing expectations and slowing from 3.5% previously. These figures highlight concerns about household demand, even as inflation remains slightly above the European Central Bank’s (ECB) target.

The broader eurozone outlook has also shifted. Earlier in the summer, sentiment was firmly on the euro’s side. Now, disappointing trade negotiations, political uncertainty, and rising bond yields have eroded that advantage. The single currency increasingly depends on negative US surprises to regain momentum and break free from its current trading range.

Sterling Faces Key Data Risk

The pound extended gains yesterday against most G10 currencies, seeing its strongest moves versus the Scandinavian and commodity-linked currencies, although it lagged against the US dollar. On a weekly basis, sterling is up primarily against traditional safe havens such as the Swiss franc and Japanese yen, underlining its fragile position.

GBP/USD struggled to re-enter the upward trend channel established earlier this year, stalling at the 100-day moving average. The bounce from 1.31 in mid-August offered temporary support, but market conviction remains low. Technically, the bias is still negative, though the 21-day moving average is inching higher and may soon cross the 50-day, which could signal a potential trend shift.

The focus is squarely on today’s US payrolls release. Overnight implied volatility in GBP/USD spiked, reflecting the familiar pre-payroll nerves. A weaker-than-expected report could lift the pair above 1.3550 resistance, while a stronger reading risks pushing it below 1.34, with 1.32 as the next downside target. Beyond the immediate catalyst, sterling continues to face headwinds from a sluggish domestic economy and rising fiscal concerns, despite UK yields remaining among the highest in the G10.

US Labour Market Weakness Intensifies Fed Scrutiny

This week’s US economic releases have set the stage for a high-stakes jobs report. The ADP survey recorded only 54,000 private payroll gains in August, far below expectations. Meanwhile, the Federal Reserve’s Beige Book indicated that most districts saw little or no change in employment, with firms increasingly hesitant to hire.

The picture points to cyclical weakness on the demand side. Businesses are scaling back recruitment amid softening consumer demand and ongoing uncertainty. On the supply side, structural shifts are becoming more pronounced. The Beige Book noted headcount reductions through attrition, often driven by return-to-office policies and accelerated by automation and AI technologies. A shortage of immigrant labour also continues to limit growth in sectors such as construction.

Collectively, these developments reinforce the view that the US labour market is losing its inflationary pressure. Markets are now pricing in nearly a full quarter-point cut at this month’s Federal Reserve meeting, with expectations supported by forecasts of a 75,000 increase in non-farm payrolls and a steady unemployment rate.

A weaker-than-expected payroll figure today would strengthen the case for a dovish Fed and could weigh further on the US dollar. Conversely, a stronger-than-expected reading would challenge the prevailing narrative of a cooling labour market and could prompt a re-evaluation of recent downward revisions to employment data.

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