Dollar Holds Decline on Soft Jobs Report

The dollar index held below 101 on Friday after tumbling in the previous session, as weaker-than-expected US labor market data led traders to dial back expectations for Federal Reserve rate hikes this year. The US economy added just 57,000 jobs in June, the fewest in four months and well below forecasts of 110,000, while the unemployment rate stood at 4.2%. That followed a report on Wednesday showing private-sector job growth also fell short of expectations. Fed funds futures now imply roughly a 50% chance of a September rate hike, down from 67% before the latest employment report. Fed Chair Kevin Warsh also said this week that inflation expectations are moderating while reaffirming the central bank’s commitment to maintaining price stability. The dollar index is on track to end the week lower, snapping a two-week winning streak.

The US dollar index declined to 100.8 following a softer-than-anticipated employment report that led investors to scale back expectations for Federal Reserve interest rate increases this year. Nonfarm payrolls expanded by a meager 57K in June, compounded by downward revisions to hiring data from April and May. Although the unemployment rate unexpectedly ticked down to 4.2%, this shift primarily stemmed from a shrinking labor force participation rate, highlighting an overall cooling in the job market. Consequently, the market implied probability of a September rate hike dropped to nearly 50% from roughly 64% the previous day. This cautious outlook was further reinforced by Fed Chair Kevin Warsh at the ECB Forum, who noted that moderating inflation expectations have removed the immediate urgency for tightening monetary policy, even as he maintained the central bank's overarching commitment to achieving long-term price stability.

The dollar index was little changed at around 101.4 on Thursday after experiencing heightened volatility in the previous session, as investors cautiously awaited the June jobs report for fresh insights into labor market conditions and greater clarity on the Federal Reserve’s policy outlook. Data released on Wednesday showed private-sector hiring in the US slowed more than expected last month. Fed Chair Kevin Warsh also said inflation expectations had eased over the past month, signaling there was no urgency to raise interest rates. However, he reiterated the central bank’s commitment to restoring price stability. Markets continue to price in more than a 60% chance of a Fed rate hike in September. The dollar also remained resilient despite rising oil shipments through the Strait of Hormuz and signs of progress in indirect US-Iran talks, which pushed oil prices lower and eased inflation concerns.