Title: US Dollar Weakens Following Disappointing Jobs Data and Government Shutdown Uncertainty
Source: Original report by Gertrude Chavez-Dreyfuss, Reuters via TradingView
Link: https://www.tradingview.com/news/reuters.com,2025:newsml_L2N3VI0IK:0-us-dollar-slumps-after-poor-jobs-data-as-government-shutdown-raises-uncertainty/
By Gertrude Chavez-Dreyfuss, Reuters
The U.S. dollar declined on Friday after the release of weaker-than-expected jobs data, which contributed to growing market expectations that the Federal Reserve may adopt a more dovish monetary policy stance. Concerns regarding a potential U.S. government shutdown further weighed on sentiment, adding a layer of uncertainty to an already volatile forex market.
The greenback retreated across several major currency pairs, following a closely watched report showing softer employment figures for the month, reviving market expectations of possible interest rate cuts by the Federal Reserve in the near term.
Key Developments Behind the Dollar’s Weakness
The dollar’s decline on Friday was driven by two major developments:
1. A weaker-than-expected U.S. nonfarm payrolls report, which pointed to a softening labor market.
2. Increased political uncertainty, with a looming government shutdown threatening to disrupt confidence across financial markets.
Poor U.S. Jobs Data Sparks Dovish Sentiment
The Labor Department’s jobs report for the month showed nonfarm payrolls rising by only 187,000 positions, significantly lower than economists’ average expectation of 240,000. Revisions to the previous two months also showed a net downward adjustment of 110,000 jobs, further supporting the view that the robust post-pandemic labor market may finally be cooling.
Key highlights from the U.S. labor report:
– Nonfarm payrolls increased by 187,000 jobs in the reported month.
– Economists had forecast job gains of approximately 240,000.
– Job numbers for June and July were revised down by a combined 110,000.
– The unemployment rate rose to 3.8% from the previous reading of 3.5%.
– Average hourly earnings increased just 0.2%, below the expected 0.3% rise.
The underwhelming report raised concerns that the Federal Reserve could slow or pause its rate tightening cycle. Market participants responded by increasing bets that the Fed will not hike interest rates at its next policy meeting and could even consider a rate cut in early 2025 if labor market weakness persists.
Decline in Bond Yields Adds to Dollar Pressure
The soft labor print prompted a sell-off in U.S. Treasury yields, adding further downward pressure on the dollar. The yield on the benchmark 10-year Treasury note dropped to 4.17%, its lowest in over two weeks, reflecting diminished expectations for future rate hikes.
Market-based indications, such as fed fund futures, now suggest:
– Around a 90% probability that the Fed will leave rates unchanged at its September meeting.
– Growing expectations of rate cuts as early as the first quarter of 2025, particularly if economic data continues to soften.
The bond market’s reaction confirmed traders’ belief that the Fed may begin to pivot away from its hawkish stance, especially with inflation largely trending downwards and employment showing clear signs of cooling.
Political Risks: Government Shutdown Looms
In addition to the disappointing economic data, rising concern over a possible U.S. government shutdown further dragged on the greenback. With lawmakers failing to reach an agreement on short-term funding, the probability of a shutdown grew larger heading into the weekend.
Key political uncertainties include:
– A divided Congress, with disagreements over spending limits and budget policy.
– Deadlines approaching rapidly with no clear path to resolution.
– Potential disruption to key economic data releases if the shutdown occurs.
– Market concern that future monetary policy decisions could be made with incomplete information.
Investors generally avoid the dollar
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