- The US economy unexpectedly lost 23,000 jobs in July, sharply missing expectations for an increase of around 80,000.
- As a result, markets scaled back bets on a September Fed rate hike to 44% probability, down from 67% a week earlier.
- The dollar index hovered near 99.6, its lowest since June 2, as the euro and sterling held near recent highs.
- Oil prices rose about 1.4% to roughly $85 a barrel amid concerns over the Strait of Hormuz, adding to inflation uncertainty.
- Investors are now awaiting July CPI data due Wednesday, with core CPI expected to rise 0.2% month-on-month, easing annual inflation to 2.5%.
- The weaker US labor-market signal has pulled down real-rate expectations, extending the dollar decline.
- The unemployment rate eased slightly to 4.1%, though analysts noted the decline was partly driven by lower labour-force participation.
- The softer labour data has now pushed inflation back to the centre of the policy debate, as investors reassess how long the Fed can maintain a restrictive stance.
- A weaker reading of the upcoming inflation data would likely reinforce expectations that the Fed will hold rates steady in September, adding further pressure on the dollar.
The US dollar is struggling near a two-month low as a weak jobs report revealed a loss of 23,000 jobs in July, significantly altering interest rate expectations. The unemployment rate eased to 4.1%, but this was driven by lower labor-force participation.17
Traders have reduced the probability of a Federal Reserve rate hike in September to 44%, down from 67% a week ago, as the market reassesses the Fed's policy stance. US Treasury yields have also slipped, with the benchmark 10-year yield around 4.637%.
The focus now shifts to the consumer price index (CPI) for July, expected to show a 0.2% month-on-month increase, which could influence the Fed's next move. A weaker CPI reading would reinforce expectations for the Fed to hold rates steady, further pressuring the dollar.5
As Geoff Yu from BNY noted, the weaker labor-market signal has pulled down real-rate expectations, extending the dollar's decline. The upcoming inflation data will be crucial for determining the Fed's policy direction.
Oil prices have also risen, adding uncertainty to the inflation outlook, with Brent crude futures climbing about 1.4% to roughly $85 a barrel amid geopolitical concerns.4
Overall, the dollar's trajectory will depend heavily on the inflation data set to be released this week, which could either support or undermine the currency's value.
“The dollar index sits at 99.6, near its lowest since June 2, while the euro and sterling hold near recent highs. Markets now price a 44% chance of a September Fed hike, down from 67% a week ago, with oil's 1.4% rise adding to inflation uncertainty.”
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