Is a Weak NFP the Final Trigger for Fed Rate Cuts?

We’re entering July with markets surprisingly calm after months of high volatility. Despite the quiet, EUR/USD and USD/JPY have seen retracements before continuing their downtrends. Key drivers have been European CPI data and German inflation earlier this week.

European CPI came in at 2%, slightly above the previous 1.9%, showing modest inflation pressure. Meanwhile, Fed Chair Powell stated that the Fed would have already cut rates if not for inflationary pressures linked to Trump’s tariffs. These policies, intended to support industry, are ironically delaying the rate cuts Trump wants.

Trump is reportedly strategising to replace Powell with someone more aligned with his views. We've seen similar moves before—like in Brazil—where replacing a central bank head resulted in rate hikes instead of cuts. Still, markets expect 75 basis points in cuts by the end of 2025, spread across September, October, and December.

The big event now is Thursday’s U.S. non-farm payrolls (NFP), moved forward due to the July 4th holiday. The consensus expects 120,000 jobs, down from 139,000, and unemployment rising slightly to 4.3%. If these figures miss expectations, the Fed has even more reason to accelerate rate cuts—potentially 85 basis points by year-end.

The U.S. dollar continues to weaken, and the market remains in risk-on mode. I remain bullish on EUR/USD, GBP/USD, AUD/USD, NZD/USD, and bearish on USD/JPY, USD/CAD, and Gold. Gold, while volatile, still reflects broader uncertainty around rates and inflation.

Let’s see how the NFP plays out—it could determine the market’s next big move.

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