Dollar Sinks to 7-Week Low as Weak US Payroll Report Triggers Rate Hike Doubts
The dollar index (DXY00) hit a 7-week low on Friday after the US July payroll report showed an unexpected decline in nonfarm payrolls and smaller-than-expected average hourly earnings, indicating a dovish tilt for Fed policy.
The report's weak numbers, particularly the -23,000 drop in nonfarm payrolls, cut the chances of a Fed rate hike at next month's FOMC meeting to 44% from 58% before the report. This shift in expectations weighed on the dollar, which finished down -0.41%.
The payroll report also showed an unemployment rate that fell to a 13-month low of 4.1%, but this was offset by a smaller-than-expected increase in average hourly earnings, which rose +0.1% month-over-month and +3.2% year-over-year.
St. Louis Fed President Alberto Musalem's comments on Thursday evening provided some support for the dollar, as he emphasized the need to put a 'meaningful restraint' on underlying inflation rather than tolerating higher inflation today in pursuit of productivity growth tomorrow.