**Dollar Momentum Quelled After Weak US Jobs Report**
*Adapted from the original article by Justin Low, TradingView / ForexLive*
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Throughout the first half of 2024, the US dollar’s robust bullish momentum stood resilient despite fluctuating global market conditions and diverging monetary policies from major central banks. The greenback, a barometer for global sentiment and US economic strength, captured tailwinds from bets on Federal Reserve rate hikes, resilient US economic data, and persistent global growth uncertainty. However, this strong advance came to a halt following the latest US jobs report, which upended the prevailing narrative.
## Key Highlights from the US Jobs Report
– **Nonfarm Payrolls (NFP) Miss:** The US economy added 175,000 jobs in April, drastically underperforming against the market consensus of 243,000.
– **Unemployment Rate Rises:** The unemployment rate edged up to 3.9 percent, slightly above forecasts and last month’s reading of 3.8 percent.
– **Wage Growth Softens:** Average hourly earnings growth slowed to 0.2 percent month-on-month, the weakest pace since early 2022.
This confluence of weaker-than-expected employment data interrupted the relentless US dollar rally, prompting broad-based declines against a basket of major currencies.
## Why the Jobs Report Matters for the Dollar
The US dollar’s momentum in recent months was closely linked to expectations the Federal Reserve would maintain higher interest rates for an extended period. With inflation proving more stubborn than anticipated and economic resilience apparent, markets pushed back the timeline for potential Fed rate cuts.
– **Fed Policy Sensitivity:** The US dollar is highly sensitive to expectations around the Fed funds rate.
– **Jobs and Inflation Link:** A tight labor market stokes inflation pressures, justifying the Fed’s cautious stance.
– **Weaker Jobs Data’s Effect:** The April jobs report signalled some softening in labor demand, raising the prospect of earlier or deeper rate cuts.
In response, traders unwound some long-dollar positions as US yields retreated.
## Market Reaction: A Turnabout for the Dollar
Immediately after the jobs data release, the US dollar saw swift declines across major pairs.
– **EUR/USD Reaction:** The euro rebounded toward 1.0800, reversing nearly all its April losses.
– **GBP/USD Strength:** The pound pushed back above 1.2600, finding renewed buying interest.
– **USD/JPY Retreat:** The yen strengthened significantly, with USD/JPY sliding below the key 154.00 area after flirting with multi-decade highs above 157.00 earlier.
This sudden pullback illustrates the market’s sensitivity to any signs that could shift the Fed’s policy outlook.
## US Bond Yields Tumble
Another telling reaction came from the US Treasury market. Yields on benchmark US government debt fell sharply as investors moved to price in a higher probability of Federal Reserve accommodation:
– **2-Year Yield Movement:** The 2-year Treasury yield, especially sensitive to monetary policy expectations, dropped nearly 20 basis points on the day.
– **Yield Curve Steepens:** The yield curve steepened, further reflecting a re-pricing of near-term interest rate prospects.
As yields tumbled, the relative attractiveness of dollar-denominated assets diminished, compounding the greenback’s weakness.
## Shifting Fed Rate Cut Expectations
As recently as April, a “higher for longer” Fed appeared to be the consensus. However, the latest data pivoted market perceptions:
– **Market-Implied Odds:** Fed funds futures suggested the probability of a rate cut as soon as September rose markedly after the report.
– **2024 Rate Cut Pricing:** Markets are now pricing up to two 25-basis point cuts in 2024, compared to barely one cut just a week ago.
– **Fed Speakers’ Tone:** Comments from Fed officials since the report have reflected rising caution, with some
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