EUR/USD on High Alert Ahead of NFP Report Amid Hawkish and Dovish Fed Comments

The EUR/USD session on Friday is dominated by expectations ahead of the NFP report. The outlook for US monetary policy has become significantly more complicated due to recent comments from Fed officials Kevin Warsh and Christopher Waller.

Warsh sounded particularly hawkish during the Jackson Hole symposium, arguing that inflation remains too high and that the Fed still has a lot of work to do. In contrast, Waller suggested that rates could remain unchanged in September if inflation continues to improve.

US Treasury yields have also risen sharply in recent weeks, making it difficult for investors to determine whether elevated yields are mainly the result of expectations for higher Fed rates or structural factors such as heavy Treasury supply and fiscal outlook.

The NFP report will provide another important piece of evidence. A weak NFP could reduce expectations for a Fed rate hike and support EUR/USD, but after Warsh's comments, the reaction may be more limited than before. A strong report, particularly if accompanied by solid wage growth, could increase expectations for higher rates and support the dollar.