October's US nonfarm payrolls showed employers added 165,000 jobs, more than double analysts' forecasts, as the unemployment rate fell to 4.1% from 4.2%. The Dollar Index surged about 0.7%, its biggest one-day gain in nearly six months, pushing EUR/USD to $1.1132, near its lowest since May 2025, and lifting USD/JPY 0.6% on Friday. On Monday the dollar is retracing as investors lock in profits and risk appetite recovers. The Dollar Index has dipped back toward 102.00. EUR/USD has edged above $1.1150, sterling approached $1.3400, and USD/JPY eased toward 158.00. An AI-stock selloff that added to safe-haven demand on Friday has also calmed at the start of the week.
When a jobs report beats forecasts by this margin, it tells markets the US economy is resilient enough to absorb higher interest rates. The Federal Reserve raises rates to control inflation, and a strong labour market reduces urgency to cut. That shifts the rate differential in the dollar's favour: higher US rates make dollar-denominated assets more attractive to global investors, pulling capital in and lifting the currency. Today's retreat is classic profit-taking. After a large directional move, traders who bought dollars on Friday sell some of that position to lock in gains. This does not change the underlying thesis. Market pricing for a Fed rate hike at December's meeting moved higher after Friday's data, and that repricing will continue to anchor the dollar at a firmer level than before the payrolls report.
Profit-taking trims Friday's NFP-driven dollar gains, allowing EUR/USD to recover above $1.1150.
Dollar retreats from Friday's post-payrolls peak, pulling USD/JPY back toward 158.00.
Risk appetite recovers as AI-stock fears ease, lifting the risk-sensitive Australian dollar.
Dollar softness supports sterling, but BoE's Pill tempered aggressive rate hike expectations on Friday.
Three Federal Reserve speakers are scheduled today: Bowman, Goolsbee, and Barkin. Hawkish remarks could reinforce December hike bets and reverse the dollar's morning pullback. BoE Governor Bailey also speaks at around 17:25 UTC, and sterling is sensitive to any caution that follows last week's rate hike. Wednesday's US CPI report is the week's most consequential event for the dollar.