Karen Brettell
NEW YORK (Reuters) – The U.S. dollar fell to a four-month low on Friday after a weaker-than-expected jobs report for July raised expectations that the Federal Reserve would cut interest rates by 50 basis points in September on a worsening economy.
Employers added 114,000 jobs, below expectations for a gain of 175,000. The unemployment rate rose to 4.3%, above economists’ expectations of being unchanged this month at 4.1%.
Investors now price in a 71% chance that the Fed will cut rates by 50 basis points in September, up from 31% before the data and 22% on Thursday, according to CME Group’s (NASDAQ:) FedWatch Tool.
The cut of at least 25 basis points in September is now fully factored in, and monetary policy is expected to ease by 116 basis points by the end of the year.
“This is what growth fear looks like. The market is starting to realize that the economy is actually slowing down,” said Wasif Latif, president and chief investment officer at Sarmaya Partners in Princeton, New Jersey.
It last fell 1.1% to 103.21 and bottomed out at 103.12, its lowest since March 14. It is the biggest one-day percentage drop since November.
Treasury yields also fell, with the yield on the two-year rate-sensitive note falling to 3.845%, its lowest level since May 2023, and the yield on the 10-year Treasury note hitting a low of 3.79% for the first time since Dec. 27.
The U.S. Labor Department said Hurricane Beryl, which made landfall in Texas on July 8, had “no discernible impact” on employment data, dismissing one theory that could explain the weakness.
“There’s no bright spot anywhere, as far as I can tell. They’re saying there’s been no hurricane effects, and if there were, it’s not enough to offset the amount of softness we’re seeing,” said Steve Englander, global head of G10 FX research at Standard Chartered (OTC:) in New York.
Some economists, however, were not convinced that Beryl was having no impact and saw some positive aspects in Friday’s employment data.
The Federal Reserve kept interest rates unchanged at the end of a two-day meeting on Wednesday, with Chairman Jerome Powell saying rates could be cut as early as September if the U.S. economy follows the expected path.
US Federal Reserve Chairman Austan Goolsbee said on Friday that the US central bank should act “steadily”, in soft resistance to market pricing in interest rate cuts.
Weaker employment data, a tender manufacturing report and a disappointing business outlook in recent days have increased concerns that the economy is deteriorating at a faster pace.
But despite Friday’s tender jobs report, Englander notes that “most other indicators are not consistent with a really sharp slowdown right now… Everything is soft, but nothing is catastrophically soft.”
We will now be following modern economic data releases even more closely to see whether the outlook for economic growth is as bad as feared.
The dollar weakened 1.84% to 146.62 Japanese yen and fell to 146.42, its lowest level since Feb. 2.
The yen has appreciated from a 38-year low of 161.96 against the dollar on July 3, helped by interventions by Japanese authorities and traders unwinding carry trades in which they held brief yen and long U.S. dollar assets.
The economy received an additional boost on Wednesday when the Bank of Japan raised interest rates to 0.25%, its highest since 2008.
The Japanese yen and Swiss franc also gained on demand for safe-haven assets amid a sell-off in equities and geopolitical concerns.
Qatar on Friday held a funeral for Hamas leader Ismail Haniyeh, who was assassinated two days earlier in the Iranian capital, Tehran, with investors worried it could escalate the conflict in the Middle East.
The dollar weakened by 1.58% to 0.859 Swiss francs
The euro gained 1.12% to $1.0912 and settled at $1.0927, its highest level since July 18.
Sterling rose 0.53% to $1.2807, recovering from a one-month low after the Bank of England cut interest rates from a 16-year high on Thursday.
In the cryptocurrency market, bitcoin fell 2.74% to $62,878.
