U.S. Dollar Plunges Amid Fed Rate-Cut Bets and Leadership Shake-ups

The U.S. dollar has fallen sharply, driven by increasing expectations that the Federal Reserve will soon cut interest rates. This shift in sentiment was triggered by a significantly weaker-than-expected non-farm payrolls report for July and key developments within the Fed. The report showed that employers added only 73,000 jobs, far below the anticipated 110,000, while job gains for the previous month were drastically revised downward. The unemployment rate also ticked up to 4.2%.

The disappointing data led traders to more than double their bets on a September rate cut, with odds for a 25 basis point reduction jumping to more than 85%. The sentiment was further amplified by the unexpected resignation of Fed Governor Adriana Kugler, which has fueled speculation of a more dovish tilt on the board. The dollar index, which measures the greenback against a basket of major currencies, was down more than 1% following the news.

Other currencies reacted strongly to the news. The euro surged against the dollar, logging its biggest daily gain since April, while the Japanese yen strengthened significantly. Meanwhile, the Swiss franc and Canadian dollar were hit by new tariff policies imposed by the U.S. President.

The weak jobs report and other recent events have complicated the outlook for the dollar. While some analysts believe the dollar’s previous rebound could be the start of a broader strengthening trend, the latest economic data suggests the U.S. economy might be losing steam, making a recession more probable. In a recessionary environment, the dollar would likely weaken against lower-yielding currencies like the euro and yen.