Dollar Falls to 7-Week Low on Disappointing US Payroll Report

The US dollar index (DXY) fell to a 7-week low on Thursday after the release of the July payroll report, which showed an unexpected decline in nonfarm payrolls and a smaller-than-expected increase in average hourly earnings.

The report indicated that nonfarm payrolls declined by -23,000, weaker than expectations of +80,000. This was the first decline in 5 months, with June's payrolls revised downward to show a +20,000 increase from the previously reported +57,000.

Despite this, the unemployment rate unexpectedly fell to a 13-month low of 4.1%, showing a stronger labor market than expected. However, average hourly earnings rose only +0.1% month-over-month and +3.2% year-over-year, which was weaker than expectations.

The disappointing payroll report reduced the chances of a Fed rate hike at next month's FOMC meeting to 44% from 58%. This decline in probability contributed to the dollar's weakness, as investors sought lower-yielding assets.