USD exchange rates dropped sharply after a shock fall in non-farm payrolls forced markets to rethink a September Federal Reserve rate hike.
The US economy unexpectedly lost 23,000 jobs in July, compared with expectations for an increase of around 80,000.
June’s increase was also revised sharply lower to just 20,000.
The weakness extended beyond the headline figure.
Private payrolls increased by only 30,000, while average hourly earnings rose by less than 0.1% on the month and annual wage growth slowed to 3.2%.
The unemployment rate dipped from 4.2% to 4.1%, but this reflected a further fall in labour-force participation rather than stronger employment.
Previous payroll estimates were also revised substantially lower, with May and June employment gains cut by a combined 103,000.
Fed Rate Hike Odds Tumble
The market reaction was immediate.
LSEG interest-rate pricing showed the probability of a September Fed rate hike falling to 43.9% from 57% immediately before the report, effectively cutting what had been close to a 60% probability to around 40%.
That is a significant reversal after last week’s Federal Reserve meeting, when three policymakers voted for an immediate 25-basis-point increase and markets had been leaning towards another move higher in September.
US Treasury yields dropped sharply, with the benchmark 10-year yield falling to around 4.60% from 4.67% immediately before the release.
The Dollar followed yields lower.
Exchange Rates UK reaction data showed broad USD losses within minutes of the release, with the Dollar down against Sterling, the Euro, Australian Dollar, Canadian Dollar and Swiss Franc, while the biggest move came against the Japanese Yen.
GBP/USD and EUR/USD both jumped as traders rapidly unwound expectations for tighter US monetary policy.
Wall Street welcomed the change in rate expectations.
S&P 500 futuresrose around 0.5% in pre-market trading, while Nasdaq futures recorded an even stronger gain as falling yields boosted rate-sensitive stocks.
The next major test for the Dollar will now be Wednesday’s US CPI inflation release.
A softer inflation print alongside today’s weak employment data would make a September rate hike increasingly difficult for the Fed to justify, while a renewed inflation surge could quickly revive the tightening debate.
Our currency coverage draws on live market data, official economic releases and published bank research.
