The US Dollar (USD) experienced significant selling pressure on Friday following the release of a much weaker-than-expected US Nonfarm Payrolls (NFP) report. According to the Bureau of Labor Statistics, NFP declined by 23,000 jobs in July, compared to market expectations for an increase of 80,000. Additionally, June payrolls were revised down from 57,000 to 20,000, and May from 129,000 to 63,000, resulting in a combined downward revision of 103,000 jobs [1][2]. Despite the sharp deterioration in payroll growth, the Unemployment Rate edged down to 4.1% from 4.2% [1][2]. The Labor Force Participation Rate slipped to 61.4% from 61.5%, and annual Average Hourly Earnings growth slowed to 3.2% from a revised 3.4%, indicating a gradual cooling of the US labor market [1].
The weak payroll figures led traders to scale back expectations for Federal Reserve (Fed) interest-rate hikes. According to the CME FedWatch Tool, the probability of a 25-basis-point rate hike at the September meeting dropped significantly, with markets now assigning around a 42.1% probability, down from 67% a week ago [1][2]. The US Dollar Index (DXY) fell to around 99.50, down nearly 0.45% on the day, while the benchmark 10-year US Treasury yield declined to approximately 4.60%, about eight basis points below its intraday high of 4.68% [2].
Currency markets reacted strongly to the US jobs data. The Japanese Yen (JPY) surged, with USD/JPY falling toward 157.40, down 0.65% on the day at the time of writing [1]. Japanese authorities, including the Ministry of Finance (MoF) and Finance Minister Satsuki Katayama, reaffirmed their commitment to countering excessive weakness in the Yen and confirmed joint intervention with the US in the foreign exchange market. Estimates suggest Japan used a record of about ¥14 trillion in its most recent intervention, driving USD/JPY down from an intra-day high of 163.74 on July 30 to a low of 155.23 on August 3, an 8.5 yen rally [1]. However, analysts at BBH note skepticism about the lasting effectiveness of Japan's interventions, despite the recent moves [1].
The British Pound (GBP) also strengthened, with GBP/USD trading around 1.3506, near three-week highs [2]. The softer US labor-market data coincided with easing energy-driven inflation risks, as West Texas Intermediate (WTI) oil prices fell sharply to around $76 per barrel, down nearly 10% this week. Oil prices dropped after Iran and Oman reportedly moved closer to a framework that could temporarily increase shipping through the Strait of Hormuz, though a final announcement has not yet been made [2].
Looking ahead, traders are focused on next week’s US Consumer Price Index (CPI) data for further clues on the inflation outlook. Headline CPI is expected to rise 0.1% month-over-month in July after falling 0.4% in June, while core CPI is forecast to increase 0.2% following an unchanged reading in the previous month [2].
CONCLUSION
The disappointing US jobs report has triggered a broad selloff in the US Dollar, boosting both the Japanese Yen and British Pound. Reduced expectations for Fed rate hikes and falling Treasury yields signal a shift in market sentiment. Investors now await US CPI data for further direction on inflation and monetary policy.