The dollar index (DXY) dropped by 1.11%, retreating from a two-month high after the July payroll report indicated a cooling U.S. labor market, leading to increased speculation that the Federal Reserve may cut interest rates as soon as September. The odds of a rate cut at the September FOMC meeting rose to 86% from 40% prior to the report’s release. July nonfarm payrolls rose by only 73,000, below expectations of 104,000, while the unemployment rate increased to 4.2%.
In addition, the July ISM manufacturing index fell to 48.0, marking its steepest contraction in nine months, and construction spending unexpectedly decreased by 0.4% month-over-month. Meanwhile, the Eurozone’s July CPI increased by 2.0% year-over-year, consistent with expectations, adding pressure on the euro which rose sharply today by 1.35% against the dollar.
U.S. Treasury yields dropped, contributing to a rally in precious metals, with gold rising by 1.85% and silver by 1.22%. The yen also appreciated against the dollar, rising significantly after Japan’s Finance Minister expressed concerns over forex market movements.
