The U.S. dollar continued to lose ground on Monday, deepening its losses from late last week, as disappointing employment data strengthened expectations of a near-term interest rate cut by the Federal Reserve.
By 04:20 ET (08:20 GMT), the U.S. Dollar Index—tracking the greenback against six major peers—declined 0.2% to 98.722, following Friday’s sharp 1% drop.
Poor Payroll Numbers Weigh on Dollar as Rate Cut Odds Rise
Friday’s employment report showed U.S. nonfarm payrolls grew by only 73,000 in July, significantly underwhelming forecasts. Compounding the weakness were sizable downward revisions to job gains in May and June. The unemployment rate edged higher to 4.2%, amplifying concerns over a labor market slowdown and prompting a shift in market sentiment toward monetary easing. Traders now see a roughly 90% chance of a rate cut in September.
Bond markets reacted swiftly, with the yield on the two-year U.S. Treasury falling to a three-month low of 3.6590% on Monday. Meanwhile, the 10-year yield hovered just above a one-month low at 4.2493%.
The White House also made headlines after President Donald Trump abruptly dismissed Bureau of Labor Statistics Commissioner Erika McEntarfer, accusing her—without offering evidence—of manipulating employment figures.
“Uncertainty about the quality of U.S. data is not a good look for U.S. asset markets and could add some more risk premium both into the dollar and Treasuries,” said analysts at ING in a note. “For Treasuries, this week sees $125bn in auctions of three, ten and thirty-year Treasury notes. Let’s see how those auctions go.”
Further adding to the dollar’s challenges was the unexpected resignation of Federal Reserve Governor Adriana Kugler. Her departure gives President Trump the opportunity to install a more dovish policymaker, potentially increasing the internal pressure on Fed Chair Jerome Powell.
“An earlier replacement for Kugler would likely add another dissenter to the Fed’s current stance of unchanged rates and turn up the internal pressure on Powell,” ING added.
Euro Outlook Brightens
In currency markets, the euro slipped 0.2% to 1.1563 against the dollar, consolidating after Friday’s strong rally.
“With an important low made near 1.1400, we suspect there will be plenty of buyers in the 1.1500/1520 area – should it make it that low. 1.1700 seems a reasonable target for the next couple of weeks,” said ING.
Eurozone sentiment also received a lift from Spain, where data from the Labour Ministry showed a 0.1% decline in jobless claims in July. The total number of unemployed fell to 2.40 million, marking the lowest figure since June 2008.
Elsewhere in Europe, the British pound dipped 0.1% to 1.3274, while USD/CHF advanced 0.6% to 0.8085. The Swiss franc remained under pressure after President Trump targeted Switzerland with steep tariffs as part of his broader trade overhaul.
“If those tariffs stick, this will add to the disinflationary forces in Switzerland, which are keeping CPI near 0% year-on-year,” noted ING.
Yen Retreats, China Optimism Lifts Yuan
The Japanese yen gave up some of its recent gains, with USD/JPY climbing 0.3% to 147.94. The currency had drawn strong haven inflows on Friday, setting it apart from its peers.
Meanwhile, the Australian dollar edged up 0.1% to 0.6482. The Chinese yuan gained ground as well, with USD/CNY falling 0.5% to 7.1763 after encouraging comments from U.S. Treasury Secretary Scott Bessent. On Friday, Bessent said he believed the U.S. was on the verge of a trade breakthrough with China and that he remained “optimistic” about the path forward.
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