EUR/USD retreats as safe-haven demand lifts US Dollar despite NFP shock

EUR/USD trades around 1.1560 on Friday at the time of writing, down 0.40% on the day after briefly rebounding toward 1.1590 following the release of the latest United States (US) labor market data.

The Nonfarm Payrolls (NFP) report published by the US Bureau of Labor Statistics showed that employment declined by 92K jobs in February, sharply missing expectations for an increase of 59K. The previous month’s figure was also revised slightly lower to 126K. At the same time, the Unemployment Rate rose to 4.4% from 4.3%, while the Labor Force Participation Rate edged down to 62%. However, wage dynamics remained relatively firm, with Average Hourly Earnings increasing by 0.4% MoM and 3.8% YoY.

This combination of deteriorating job creation and still-elevated wage growth complicates the outlook for the Federal Reserve (Fed). A weaker labor market would normally reinforce expectations of monetary easing, but resilient wage pressures may limit the central bank’s room for aggressive rate cuts in the near term.

At the same time, US Retail Sales data also highlighted signs of a cooling economy, with sales declining by 0.2% MoM in January. Although the contraction was smaller than expected, the data confirmed a slowdown in consumer momentum, reinforcing concerns about the resilience of domestic demand.

Meanwhile, the US Dollar (USD) is finding renewed support from safe-haven flows as geopolitical tensions continue to fuel global risk aversion. In a post published on Truth Social, US President Donald Trump stated that there would be “no deal with Iran except unconditional surrender,” adding that the United States and its allies would later help select a new leadership to rebuild the country. These remarks reinforced geopolitical tensions in the Middle East, prompting investors to seek safe-haven assets and supporting a rebound in the USD.

The US Dollar Index (DXY), which tracks the Greenback against a basket of six major currencies, trades 0.30% higher on Friday, near 99.30 at the time of press, and remains close to its recent three-month high, reflecting persistent demand for the US currency despite the disappointing employment figures.

In the Eurozone, economic momentum remains modest. The latest figures showed that Gross Domestic Product (GDP) expanded by 0.2% QoQ in the fourth quarter, slightly below earlier estimates. On an annual basis, growth came in at 1.2%, reflecting the region’s fragile recovery amid ongoing trade tensions and external uncertainties.

As markets head toward the weekend, volatility in EUR/USD remains elevated. While the weak US employment data initially triggered a brief rebound in the pair, the broader risk-off environment continues to favor the US Dollar, limiting upside attempts for the Euro in the near term.