Dollar Holds Losses on Easing Rate Hike Bets

The dollar index remained below 101 on Monday after posting weekly losses, as softer-than-expected US jobs data and lower oil prices led traders to scale back expectations for Federal Reserve interest rate hikes. Data released last week showed US nonfarm payrolls increased by just 57,000 in June, the smallest gain in four months and well below forecasts of 110,000, prompting markets to reduce bets on a September rate hike. Oil prices also edged lower as recovering energy flows through the Strait of Hormuz and the prospect of higher OPEC+ output fueled concerns about a potential supply glut. That has helped ease inflationary pressures that had previously bolstered expectations of further rate hikes. Investors now await the minutes of the Federal Reserve’s June policy meeting later this week for fresh clues on the outlook for interest rates.

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.