Dollar Stabilizes as Payrolls Miss Fades Amid Softer Rate Hike Expectations

The US Dollar (USD) experienced a mixed reaction after the disappointing July Payrolls report, which showed a slower-than-expected increase in employment.

Markets initially took a hit, with the USD weakening against most G10 currencies. However, TD Securities strategists note that this weakness may be short-lived, as they expect further rate hikes to be priced out of the market if core and headline CPI next week come in lower than expected.

The Payrolls report showed a 4.1% unemployment rate, which was seen as a positive development by TD Securities strategists. They believe that this easing concern over a reaccelerating labor market could lead to further pricing out of hikes, with September's pricing declining by 3bp to 12bp of hikes.

The USD is expected to remain supported against G10 currencies due to the ongoing uncertainty surrounding the Federal Reserve's rate hike plans. However, TD Securities strategists believe that the USD selloff could have more room to run against select EM currencies if markets continue to price out hikes.