EUR/USD intermaket: Fed rate hike expectations behind the rally

EUR/USD rose sharply on Friday, having the biggest daily gain in months. The weak NFP report triggered a decline of the US dollar across the board. US employment numbers were considerable weaker-than-expected, rising doubts about what FOMC officials might do during the next meetings.

The pair climbed from 1.1150 and peaked at 1.1349. The movement was explained by the dramatic change in expectations regarding US monetary policy. According to CME Fed fund futures, the odds for a Fed rate hike in June dropped today from 20.5% to only 5.5%. During the day, when odds dropped further, EUR/USD hit fresh highs.

Stocks in the US initially reacted to the downsides amid worries on the US economy, but then risk came back amid hopes of a no rate hike during the next months. Near the end of Friday, the Dow Jones was falling 0.20%, off session lows. The US 10-year dropped from 1.82 to 1.70; while the Bund fell from 0.11 to 0.07 (and closed at record lows), keeping the spread between them relatively steady.

Janet Yellen will speak on Monday and could influence the EUR/USD pair through Fed rate hike expectations that could continue to be the main driver of the pair considering that the European Central Bank is on a wait-and-see mode.