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Weak US jobs data on Friday prompted investors to pile back into bearish bets on the dollar, at the end of what was still its strongest week since the election of Donald Trump.
The greenback notched up a 1.5 per cent rise against a basket of other major currencies, according to LSEG, its largest weekly rise since the week of the US election in November 2024.
But the dollar was stopped in its tracks on Friday when new jobs data indicated a sharp slowdown in the US labour market. The dollar index fell 1.3 per cent on the day.
It marked a revival of concerns that had dealt the greenback its weakest start to a year since 1973, as traders worried about the impact of the trade war on the US economy. Concerns over the sanctity of US institutions, which had played into dollar weakness this year, also made a comeback as Trump sacked the head of the country’s labour statistics agency after the gloomy jobs report, news that sent the dollar slipping further on Friday.
“Dollar decline could be the narrative for the forthcoming days and weeks, because the market now needs to price in more rate cuts [from the Federal Reserve],” said Deepak Puri, chief investment officer for the Americas at Deutsche Bank Wealth Management.
“This was not the base case scenario two days ago,” he added. “It gives the market a pause for thought on the [strong economy] narrative it was banking on.”
Steve Englander, global head of G10 currency research at Standard Chartered, predicted that “we will get another period of dollar weakness” because of the “cyclical position” of the economy and expectations of interest rate cuts.
A further weakening in jobs data could result in larger rate cuts than the usual quarter of a percentage point, adding to downward pressure on the dollar, investors said.
Mike Riddell, a fund manager at Fidelity International, said that if next month’s payrolls report turned out to be “remotely as bad as this one”, the question will be not whether the Fed will cut in September, but by how much, with a cut of half a percentage point possible.
July’s weak jobs data came with unusually sharp downward revisions for May and June, deepening investors’ fears about the state of the economy and piling renewed pressure on the Fed to cut interest rates more steeply.
The dollar has tumbled this year as Trump’s volatile policymaking — from aggressive global tariffs and sweeping tax cuts to attacks on Fed chair Jay Powell — has spooked investors. Despite recent gains, the dollar index is still down 9 per cent this year.
“The US exceptionalism theme that was so pervasive from 2015 to 2025 was finally starting to wane” at the beginning of this year, said Brad Bechtel, global head of foreign exchange at Jefferies, which “had everything to do with the chaotic implementation of Trump’s tariffs”.
Upbeat economic data in July allowed investors to turn more positive on the currency for much of the month. Tariff announcements that had previously been a drag on the currency were instead sending it higher.
“The tariffs are dollar positive right now,” said Englander at Standard Chartered. “When they were dollar negative, it was because the market was really shocked by the aggressiveness of the tariff moves and they added a risk premium to US assets.”
Now, said Englander, the market was reverting to “normal” assumptions: that tariffs will be negative for the currencies of the tariffed countries, as their goods become more expensive abroad, and therefore positive for the dollar.