The U.S. dollar moved sharply lower on Friday after the July employment report delivered an unexpected decline in nonfarm payrolls. The weaker labor-market data prompted traders to reduce expectations for further Federal Reserve interest rate hikes.
The euro and British pound quickly strengthened against the greenback. Meanwhile, the Japanese yen also gained as selling pressure on the dollar intensified.
At 08:47 ET (12:47 GMT), the U.S. Dollar Index, which measures the currency against a basket of six major peers, fell 0.4% to 99.52.
Despite Friday’s decline, the dollar was little changed for the week. The euro and Japanese yen also recorded relatively muted weekly moves.
Currency Markets Enter Consolidation Phase
Foreign exchange markets have entered a period of consolidation following a highly volatile end to July.
Traders are currently assessing three major factors: the impact of coordinated U.S.-Japan currency intervention, continuing geopolitical risks in the Middle East, and changing expectations for Federal Reserve monetary policy ahead of the September meeting.
These forces have kept major currency pairs within relatively narrow ranges after the sharp swings seen in recent weeks.
Japanese Yen Stabilizes After Intervention Rally
The Japanese yen traded near 158.4 per dollar on Friday after giving back part of its recent gains. The currency was down around 0.5% for the week following its powerful 4% rally late last month.
That surge came after Japanese and U.S. authorities carried out a historic coordinated currency intervention. It marked the first joint intervention between the two countries since 1998.
The move helped pull the yen away from a four-decade low near 164 per dollar.
U.S. Treasury Secretary Scott Bessent has reiterated Washington’s commitment to supporting Japan’s efforts to stabilize its currency.
However, the yen’s momentum has since slowed. Traders are now watching whether the Bank of Japan will complement currency-market intervention with a faster pace of interest rate increases.
Euro Holds Steady as Oil Prices Ease
The euro remained close to $1.1520, ending the week broadly unchanged.
Lower crude oil prices over the past two weeks have helped ease concerns about inflation across the Eurozone. Falling energy prices have also reduced volatility in European bond yields.
At the same time, European Central Bank officials continue to deliver relatively hawkish signals. Some policymakers have kept open the possibility of another interest rate increase in September.
The combination of easing inflation concerns and tighter monetary-policy expectations has helped keep the euro relatively stable.
South Korean Won Extends Losing Streak
Elsewhere in Asia, the South Korean won remained under pressure. The currency slipped another 0.2%, marking its sixth consecutive weekly decline.
That represents its longest weekly losing streak since January 2023.
Weakness in the won has been linked to a broader global sell-off in technology shares. Major South Korean companies, including Samsung Electronics and SK Hynix, have faced increased volatility.
Heavy selling in leveraged exchange-traded funds tied to Korean technology stocks has added further pressure. The turbulence has also contributed to sustained foreign capital outflows from the market.
Strait of Hormuz Tensions Weigh on Risk Sentiment
Geopolitical uncertainty also weighed on investor sentiment on Friday.
Reports indicated that Iranian lawmakers were considering preliminary legislation that could restrict U.S. and Israeli vessels from passing through the Strait of Hormuz.
Such a move could threaten recent diplomatic efforts involving Oman and Qatar and potentially increase tensions surrounding one of the world’s most important energy shipping routes.
Any disruption in the Strait of Hormuz could also create renewed volatility in oil, currencies and global risk assets.
Weak U.S. Jobs Data Reshapes Fed Rate Expectations
The latest U.S. employment figures have now become a major factor for currency traders.
The unexpected weakness in July nonfarm payrolls reduced expectations that the Federal Reserve will raise interest rates again in September.
Before the latest employment figures, interest rate futures had indicated a meaningful probability of another 25-basis-point Fed hike.
However, signs of weakness in the U.S. labor market could make policymakers more cautious about tightening monetary policy further.
As a result, traders will closely monitor upcoming inflation, wage and employment data for confirmation of the Federal Reserve’s next move.
For the dollar, expectations surrounding U.S. interest rates are likely to remain one of the most important drivers heading into the autumn.
