Dollar Suffers Steepest Weekly Decline in Three Months Following Disappointing Jobs Data

TLDR

• The greenback is headed for its steepest weekly decline since early April, falling approximately 0.7% over the week
• June employment figures showed only 57,000 new jobs, significantly below the anticipated 110,000
• Probability of a Federal Reserve rate increase in September dropped from roughly 64% to between 35–52%
• The Japanese yen recovered somewhat, retreating from a four-decade low of 162.84 against the dollar
• Japan’s Finance Minister indicated Tokyo stands prepared to intervene in currency markets if necessary

The greenback is on course for its most severe weekly decline in close to three months following a weak June employment report that dampened market expectations for Federal Reserve monetary tightening.

June nonfarm payrolls increased by a mere 57,000 positions. This figure came in substantially below the 110,000 additions that market analysts had anticipated. Employment data for the previous two months also underwent downward revisions.

The labor force participation rate declined to 61.5%, marking its lowest reading in over five years. Market participants swiftly recalibrated their assessments of the likelihood of near-term Federal Reserve interest rate increases.

Prior to the employment data release, financial markets had been pricing in approximately a 64% probability of a rate hike in September. Following the report, that probability tumbled to a range between 35% and 52%, based on CME FedWatch and LSEG estimates.

U.S. Treasury yields retreated as well. Two-year note yields, which demonstrate particular sensitivity to interest rate expectations, ended a three-session advance with a four basis-point decline.

The dollar index, which measures the currency against a collection of major global currencies, dropped roughly 0.3% to 100.68 on Friday. For the week, it has declined about 0.7%, representing its largest weekly retreat since early April.

Currency Markets React

The euro advanced to approximately $1.1472, approaching a two-week peak, and is positioned for a weekly gain of around 0.6%. The British pound strengthened to $1.3380, tracking toward a weekly increase of 1.2% — its strongest performance in nearly three months.

The Australian dollar climbed to $0.6935, poised to end a four-week losing streak. The New Zealand dollar registered a weekly gain of about 1.2%.

Karl Steiner, head of analysis at SEB, noted that the disappointing data aligned with his team’s forecast that the dollar would ultimately weaken. He indicated that additional downside potential remains.

Yen Watchfulness

The Japanese yen experienced some relief this week, strengthening back above 161 per dollar after touching a 40-year low of 162.84 on Thursday.

Japan’s Finance Minister Satsuki Katayama stated on Friday that Tokyo maintains regular communication with Washington regarding foreign exchange matters and remains prepared to take action. Chief Cabinet Secretary Minoru Kihara indicated that officials were tracking markets with a sense of urgency.

Market participants are now monitoring for potential intervention, particularly during reduced liquidity conditions with U.S. markets shuttered for Independence Day observances.

Analyst Tony Sycamore at IG suggested that 162.83 appears to represent a near-term peak for the dollar-yen pair. He noted that the currency pair’s next direction will depend primarily on forthcoming U.S. economic releases and developments in Japanese government bond markets.

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