US Interest Rate Forecast: Weak Jobs Cut Fed Hike Odds Ahead of CPI

• July jobs report showed 23,000 job losses with May and June figures revised down by a combined 103,000 jobs, while unemployment fell to 4.1% primarily due to declining labor force participation (61.4%, lowest in five years)
• Annual inflation expected to slow to 3.4% in July from 3.5% in June, with core inflation forecast at 2.5%, but energy inflation remains elevated at 15.5% amid US-Iran tensions affecting oil prices
• EUR/USD maintains bullish structure above 1.1360 support with potential to reach 1.1780-1.192, supported by diverging Fed-ECB expectations as another ECB rate hike remains likely in September

Summary: US Interest Rate Forecast - Weak Jobs Data Reduces Fed Hike Expectations

Key Economic Data

Employment Report (July):

• US economy lost 23,000 jobs in July
• Downward revisions of 103,000 jobs for May (to 63,000) and June (to 20,000)
• Unemployment rate fell to 4.1% from 4.2%, though labor force participation dropped to 61.4% (5-year low)
• Wage growth slowed to 3.2% annually, with hourly earnings rising only 2 cents

Inflation Figures:

• June CPI declined to 3.5% (from 4.2% in May)
• Core inflation fell to 2.6% (from 2.9%)
• July CPI expected at 3.4% headline, 2.5% core (report due August 12)

Market Impact

Federal Reserve Outlook:

• September rate hike probability dropped from 55% to 44% post-jobs report
• Treasury yields declined: 2-year to ~4.20%, 10-year to ~4.65%
• Current Fed rate range: 3.50%-3.75%

ECB Comparison:

• ECB deposit rate at 2.25%, key rate at 2.4%
• High probability of ECB rate hike in September, contrasting with Fed pause expectations

Currency Movement:

• EUR/USD rallied to $1.1570 following weak US jobs data
• US Dollar Index fell to 99.50, testing 200-day SMA support
• EUR/USD maintains bullish structure above 1.1360 support, with resistance at 1.1626

Key Risk Factors

Brent crude at $85.29/barrel remains volatile due to US-Iran tensions, creating uncertainty for energy inflation. The July CPI report will be crucial in determining whether the Fed maintains current rates or proceeds with a September hike.