FX Market Weekly 03–08 Aug: USD weakens as U.S. labor data reduces expectations for a hawkish Fed
📉 The U.S. dollar ended the week on a softer note, with the DXY slipping from around 99.9 to near 99.5. The move reflected the combined impact of lingering effects from coordinated U.S.–Japan FX intervention and a series of U.S. labor indicators pointing to slower hiring momentum.
🇺🇸 The July NFP report became the key catalyst as nonfarm payrolls fell by 23,000, far below expectations for an increase of around 80,000. Payrolls for the previous two months were also revised down by a combined 103,000, while average hourly earnings rose just 0.1% m/m. The unemployment rate edged down to 4.1%, partly due to a contraction in the labor force.
💵 Following the data, the USD was sold broadly, with EUR/USD moving above 1.155 while USD/JPY fell toward 157.5. U.S. Treasury yields also declined as markets reduced expectations for further Fed tightening in the near term.
🇯🇵 The JPY remained supported by the aftermath of last weekend’s coordinated intervention, although the wide U.S.–Japan interest-rate differential could limit further yen strength without additional policy signals from the BoJ or Japanese authorities.
🇨🇦 The CAD was among the strongest G10 currencies late in the week after Canada added 75,100 jobs, significantly above expectations. The divergence between weaker U.S. labor data and stronger Canadian employment pushed USD/CAD down toward 1.393–1.394.
📊 U.S. CPI will be the key catalyst for the USD next week. Softer inflation could reinforce a move in the DXY toward 99.0–98.5, while a stronger-than-expected reading could support a recovery toward 100. Developments around Hormuz and comments from Fed and BoJ officials will also remain important variables.
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