Fed Divisions and Data Delays Create Dollar Crossroads as Euro Gains traction

The EUR/USD pair rose to 1.1590 on Monday, extending gains as weak U.S. labor data and diverging Federal Reserve policy signals fueled expectations of further dollar weakness. The pair's ascent followed a softer-than-expected ADP jobs report and a slump in the NFIB Small Business Optimism Index, which hit its lowest level of the year. With the U.S. dollar index (DXY) down 0.15% at 99.47, markets are increasingly pricing in a Fed easing cycle amid signs of a cooling labor market and inflation stubbornly above 2%.

The ADP report, which showed a slowdown in private-sector job creation, reinforced concerns about the U.S. economy's resilience. Meanwhile, Fed officials remain split on the path forward. Stephen Moran, a dovish governor, signaled a 50-basis-point rate cut at the December meeting, while St. Louis Fed's Alberto Musalem noted inflation remains closer to 3% and the labor market has "cooled orderly". The divide deepened as Boston Fed President Collins publicly opposed a December cut, raising fears of a policy stalemate.

Market participants are now hedging their bets. Short-term interest rate futures priced a 55% chance of a December rate cut as of November 13, down from earlier near-certainty. The uncertainty is compounded by delays in key economic data. Goldman Sachs estimates the September nonfarm payrolls (NFP) report, critical for Fed decision-making, will likely be released around November 18 or 19. Until then, traders are left parsing mixed signals from the private sector, with Apollo's Torsten Slok noting 55% of CPI components are rising faster than 3%.

Monetary policy divergence remains a tailwind for the euro. The European Central Bank (ECB) is projected to keep rates unchanged through 2027, contrasting with the Fed's anticipated 125-basis-point easing by year-end 2026. This gap has bolstered the euro, despite weak German investor sentiment in the ZEW survey and lingering global economic risks. Technical indicators, however, suggest EUR/USD faces near-term headwinds, with the RSI below 50 and a breakdown below 1.1500 threatening to extend the downtrend toward 1.1391.

The dollar's trajectory will likely hinge on the NFP report and the Fed's response. A weak reading could accelerate bets on rate cuts, while a stronger report might delay easing. For now, the euro remains supported by the ECB's hawkish stance and the Fed's internal divisions, though volatility is expected as data and policy outcomes remain uncertain.