Dollar falls sharply after poor employment data; will the Fed cut rates next month?

The U.S. dollar continued its decline on Monday, extending Friday’s sharp losses following a disappointing U.S. labor market report that bolstered expectations for early Federal Reserve rate cuts.

At 04:20 ET (08:20 GMT), the U.S. Dollar Index—measuring the greenback against six major currencies—fell 0.2% to 98.722, after dropping more than 1% on Friday.

Friday’s report showed nonfarm payrolls rose by just 73,000 in July, well below expectations, along with significant downward revisions to the May and June data. The unemployment rate ticked up to 4.2%, intensifying concerns about a cooling labor market. As a result, markets are now pricing in a 90% probability of a Fed rate cut in September.

This shift in sentiment dragged down Treasury yields, with the 2-year yield falling to a three-month low of 3.6590%, and the 10-year yield hovering near a one-month low at 4.2493%.

Adding to the dollar’s weakness was the unexpected resignation of Fed Governor Adriana Kugler, opening the door for President Trump to nominate a more dovish replacement—potentially increasing internal pressure on Fed Chair Jerome Powell to adopt an easing stance. ING analysts noted that such developments could inject additional risk premiums into U.S. assets, especially ahead of this week’s $125 billion in Treasury auctions across multiple maturities.

Meanwhile, President Trump also dismissed Bureau of Labor Statistics Commissioner Erika McEntarfer, accusing her—without evidence—of manipulating employment data. The move further unsettled markets already concerned about the credibility of U.S. economic reporting.

Euro Eyes 1.1700 as Labor Market Strengthens

The euro slipped 0.2% to 1.1563 on Monday, giving back a portion of Friday’s gains. Nevertheless, analysts anticipate continued upside for the currency.

“With a key low set near 1.1400, we expect strong buying interest around 1.1500–1.1520, with 1.1700 as a reasonable short-term target,”
said ING.

Supporting the euro’s outlook, Spain’s registered jobless count declined by 0.1% in July to 2.40 million—the lowest level since June 2008.

Pound Slips, Franc Weakens Further

GBP/USD dipped 0.1% to 1.3274, showing limited reaction to broader dollar weakness.

Meanwhile, USD/CHF rose 0.6% to 0.8085, as the Swiss franc came under pressure following the imposition of steep U.S. tariffs on Swiss goods. According to ING, if these tariffs remain in place, they could add to existing deflationary pressures, with Swiss CPI already hovering near 0%.

Yen Retreats, While Aussie and Yuan Edge Higher

USD/JPY climbed 0.3% to 147.94, as the yen retraced some of its safe-haven driven gains from last week. The currency had outperformed on Friday amid growing geopolitical tensions and rising risk aversion.

Elsewhere, AUD/USD edged up 0.1% to 0.6482, while USD/CNY dropped 0.5% to 7.1763 following comments from U.S. Treasury Secretary Scott Bessent, who said he was “optimistic” about a potential trade deal with China.