Dollar Plunges on Shock Non-Farm Payrolls Decline

The US dollar plummeted against major currencies on Thursday after a surprise decline in non-farm payrolls. The report, released by the Bureau of Labor Statistics, showed that the economy lost 23,000 jobs in July, far short of the expected increase of around 80,000.

This unexpected development has led to a significant shift in market expectations for a September Federal Reserve rate hike. According to LSEG interest-rate pricing, the probability of a rate hike fell to 43.9% from 57%, effectively cutting what had been close to a 60% probability to around 40%. The change in rate expectations was immediate and widespread, with US Treasury yields dropping sharply.

The weakness extended beyond the headline figure, with private payrolls increasing by only 30,000, average hourly earnings rising by less than 0.1%, and annual wage growth slowing to 3.2%. The unemployment rate dipped from 4.2% to 4.1%, but this was due to a further fall in labor-force participation rather than stronger employment.

The market reaction was immediate, with the dollar losing ground against major currencies such as the euro and pound. The biggest move came against the Japanese yen, which appreciated by 0.64%. Wall Street welcomed the change in rate expectations, with S&P 500 futures rising around 0.5% in pre-market trading.