Dollar Drops as July Jobs Report Misses Big
The US dollar slid against major peers on Friday after the July employment report showed unexpected job losses, undercutting the case for another Federal Reserve interest-rate hike. The greenback index (DXY) fell as much as 0.6% to 102.30, its weakest level in two weeks, before trimming losses.
Nonfarm payrolls declined by 6,000 jobs in July, a stark reversal from the 189,000 gain in June and well below the consensus forecast for a 150,000 increase. The unemployment rate ticked up to 4.1%, and average hourly earnings rose 0.2% month-over-month, cooling from the prior 0.3% pace.
Rate Futures Now See No Hike in 2025
The soft data prompted traders to push out expectations for the next Fed rate increase. Fed funds futures currently price less than a 20% chance of a move by September, down from 45% a week ago. Markets now see the first full 25-basis-point hike slipping to mid-2025, with a growing minority expecting no further tightening this cycle.
“The labor market is clearly losing momentum, and the Fed will be reluctant to act aggressively in this environment,” said a senior currency strategist at a major bank, speaking on condition of anonymity. The dollar’s slide was broad: the euro rose to $1.0930, sterling climbed to $1.2805, and the yen firmed to 155.20 per dollar.
Treasury Yields Fall, Gold Surges as Dollar Weakens
Treasury yields tumbled as investors recalibrated rate expectations. The 10-year yield dropped 9 basis points to 3.94%, while the 2-year yield fell 12 basis points to 3.82%. Lower yields reduce the dollar’s carry appeal, amplifying the currency’s losses.
Gold, which is priced in dollars, rallied as the greenback slipped. Spot gold jumped 1.4% to $2,420 an ounce, advancing for a third consecutive session. The metal has gained 12% year-to-date, supported by central bank buying and geopolitical uncertainty.
What Breaks If the Labor Market Weakens Further
The July report raises the stakes for upcoming data. If August payrolls also disappoint, the dollar could break below its June low of 101.80, opening the door to a test of 100.50. Conversely, a rebound in hiring would likely revive hike bets and support the dollar.
For gold, a sustained dollar decline would push prices toward the record high of $2,450 set in May. However, if the Fed signals a pause rather than a cut, gold’s upside could stall. The next key catalyst is the August jobs report, due on September 5.
Watch the August payroll print and the Fed’s Jackson Hole symposium in late August. A clear deterioration in employment would likely cement the dollar’s downtrend and push gold above $2,450, while a strong rebound would restore rate-hike expectations and cap gold’s gains.
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