Currency and Equity Markets React to US Jobs Report and Central Bank Outlook | Weekly Market Analysis

Key events this week:

Wednesday, September 10, 2025

• USA - PPI (MoM) (Aug)
• USA - Crude Oil Inventories
• USA - 10-Year Note Auction

Thursday, September 11, 2025

• Eurorzone - Deposit Facility Rate (Sep)
• Eurorzone - ECB Interest Rate Decision (Sep)
• USA - Core CPI (MoM) (Aug)
• USA - CPI (YoY) (Aug)
• USA - CPI (MoM) (Aug)
• USA - Initial Jobless Claims
• Eurorzone - ECB Press Conference
• USA - 30-Year Bond Auction

Friday, September 12, 2025

• UK - GDP (MoM) (Jul)

The S&P 500 slipped on Friday, retreating from its record levels as fresh signals of a cooling labor market fueled recession concerns, overshadowing optimism that the Federal Reserve is poised to cut rates later this month. The benchmark index dipped 0.3% after earlier touching a historic peak of 6,532.63, while the tech-focused Nasdaq Composite ended nearly flat with a minor 0.03% loss. The Dow Jones Industrial Average fell more sharply, losing 220 points, or about 0.5%, as investors digested the latest labor market data and positioned cautiously ahead of the Fed’s September meeting.

The US employment report highlighted weaker-than-expected job creation, intensifying debate over the strength of the economy. Nonfarm payrolls increased by just 22,000 in August, far below the 75,000 expected and down sharply from July’s upwardly revised 79,000. This slowdown raised the unemployment rate slightly to 4.3% from 4.2%, in line with forecasts but still suggesting that labor market momentum is waning. Such figures bolstered expectations that the Fed will move forward with policy easing at its September 16–17 meeting, as officials aim to cushion the economy from the growing risk of a downturn.

Currency markets reacted with mixed sentiment. The New Zealand dollar traded steadily around 0.5900 during Asian hours after China reported an improved trade balance. The August surplus widened to CNY 732.7 billion, an increase from July’s 705.18 billion. Exports climbed 4.8% year over year, although at a slower pace than the previous month, while imports gained 1.7% following a steeper July decline. The stronger surplus suggested resilient trade performance, but the data also highlighted moderating external demand. Since New Zealand’s economy is closely tied to Chinese trade flows, any signs of weakness or strength in Beijing’s numbers tend to reverberate through the kiwi.

Australia’s currency found firmer footing, extending its upward momentum against the US dollar after last week’s gains. The AUD/USD pair advanced as investors pared back expectations of aggressive rate cuts from the Reserve Bank of Australia. Stronger-than-expected GDP data for the second quarter, alongside a robust July trade surplus, suggested the economy remains more resilient than feared. Market pricing now implies a 90% chance the RBA will keep policy unchanged in September, while odds of a November cut have diminished from certainty to about 80%. Combined with the weaker US jobs report, the backdrop gave the Australian dollar additional support against its American counterpart.

The Canadian dollar, however, struggled under the weight of disappointing employment figures. USD/CAD extended its rally for a sixth straight session, hovering around 1.3840 in early Asian trading. Canada lost 65,500 jobs in August, a stark contrast to expectations of a modest gain of 7,500 and compounding July’s 40,800 decline. The unemployment rate rose to 7.1% from 6.9%, exceeding forecasts and reinforcing the likelihood that the Bank of Canada may need to ease policy further. With oil prices also softening, the loonie faced limited demand, leaving the greenback in control of the pair.

In Japan, the yen opened weaker after a weekend political shakeup, as Prime Minister Shigeru Ishiba announced plans to step down. The news overshadowed positive headlines about a recently signed US-Japan trade deal that will lower tariffs and an upward revision to Japan’s second-quarter GDP growth. Additionally, data on private spending came in stronger than anticipated, fueling speculation that the Bank of Japan could raise interest rates in the near future. Despite this, risk appetite in broader markets weighed on the yen’s safe-haven appeal, keeping it under pressure while the dollar edged higher after hitting its lowest levels since late July in the wake of the soft US payrolls release.

The euro edged lower against the dollar, hovering near 1.1710 in Monday’s Asian session after gaining more than half a percent late last week. Attention in Europe now turns to the European Central Bank’s policy meeting on Thursday, where expectations are firmly centered on a steady stance for the second consecutive gathering. Growth has stabilized and inflation is running close to target, giving policymakers room to wait before considering further adjustments. Nevertheless, lingering geopolitical tensions and uncertainty surrounding global trade remain background risks for the single currency.

The British pound began the week on a softer note, slipping below the psychologically important 1.3500 level against the dollar. The decline followed Friday’s late pullback from a three-week high near 1.3555. Despite the Bank of England’s cautious pace in trimming rates amid ongoing inflation concerns, sterling continues to struggle with fiscal policy uncertainty ahead of the Autumn Budget announcement in November. That cloud of doubt has tempered investor appetite for the pound, limiting its ability to extend gains.

Markets are now shifting focus to upcoming US inflation readings that could set the tone for the Fed’s next move. The Producer Price Index and Consumer Price Index, due Wednesday and Thursday respectively, will offer fresh insight into whether price pressures remain consistent with the Fed’s policy path. Investors will be watching closely, given that the central bank has already signaled readiness to ease borrowing costs to counter slowing growth.

Meanwhile, equity traders remain sensitive to every data point that could tilt the balance between growth resilience and recession risk. Although the S&P 500 briefly reached new record highs, the swift pullback underscored fragile sentiment. Concerns over employment, inflation, and central bank strategy continue to create crosscurrents in markets, leaving investors balancing optimism over lower interest rates with anxiety about whether the economy is heading for a more prolonged slowdown.

Overall, global markets are entering the week cautious but hopeful. The US labor market report has strengthened the case for the Federal Reserve easing, while data from Asia suggests some resilience despite slower growth trends. Political shifts in Japan, fiscal questions in the UK, and an upcoming ECB decision in Europe all add to the uncertainty. For investors, the challenge is balancing near-term volatility with long-term trends, a task that remains as complex as ever in the current macroeconomic environment.