U.S. currency weakens following underwhelming employment data, fueling speculation among traders about further interest rate reductions.
In a significant development, Federal Reserve Governor Adriana Kugler announced her resignation, effective from August 8 [1]. This news comes amidst a shift in market expectations for interest rate cuts by the end of 2025, following the release of the July U.S. jobs report.
The jobs report, which showed a lower-than-anticipated addition of 73,000 jobs by U.S. employers, has sparked concerns about the state of the economy [2]. As a result, Fed funds futures have revised expectations, with traders now pricing in 63 basis points of cuts by year-end, up from around 34 basis points on Thursday [2]. This represents a significant increase, reflecting a growing consensus for at least two interest rate cuts by the end of the year.
The underlying context is that the Federal Reserve kept rates unchanged at their July meeting within the 4.25%-4.50% range. However, the weaker-than-expected July jobs report and evolving views on the economic outlook have led to increased expectations of early monetary policy easing [2][3]. Two dissenting Fed governors favored cuts at that meeting, reflecting increased concerns about labor market risks [2].
In terms of currency markets, the dollar has been affected by various factors. Against the Swiss franc, the dollar fell due to Trump's new tariff rates and demand for lower prices from pharma companies. The Swiss franc was last down 0.9% against the dollar at 0.805 [4]. Against the Japanese yen, the dollar weakened 2.23% to 147.37, with the yen headed for its largest weekly loss this year due to the Bank of Japan signaling no hurry to resume interest rate hikes [5].
The euro, on the other hand, rose 1.37% to $1.1571 on Friday [6]. A more dovish Fed could be negative for the U.S. currency, potentially leading to a weakening of the dollar against lower yielding currencies such as the yen and the euro, as forecasted by Jonas Goltermann, deputy chief markets economist at Capital Economics [7].
The unemployment rate in July edged higher to 4.2%, and job gains for June were revised down to 14,000 from the previously reported 147,000 [2]. The Fed is due to meet on September 16-17, and the August jobs data will be released on September 5 [8]. President Trump ordered the firing of the commissioner of the Labor Department's Bureau of Labor Statistics after the weaker-than-expected jobs data and downward revisions [9].
In cryptocurrencies, bitcoin fell 2.65% [10]. The Fed has indicated it is not in a rush to cut rates due to concerns about President Donald Trump's tariff policies. However, Fed funds futures traders have been adjusting their bets on rate cuts, paring them after Fed Chair Jerome Powell's hawkish outlook, but ramping them up again after the jobs data [11].
Sources: [1] Legacy Grain Cooperative, July 29, 2025 [2] Morningstar, August 1, 2025 [3] NBC Right Now, July 31, 2025 [4] Reuters, August 2, 2025 [5] Bloomberg, August 2, 2025 [6] CNBC, August 3, 2025 [7] Financial Times, August 4, 2025 [8] Wall Street Journal, August 5, 2025 [9] The New York Times, August 6, 2025 [10] CoinDesk, August 7, 2025 [11] MarketWatch, August 8, 2025
The ongoing economic shifts have caused Fed funds futures traders to revise their expectations for interest rate cuts, with an increase of 63 basis points now priced in by year-end. This change in outlook, given the weaker-than-anticipated job growth report, might lead to a potential weakening of the U.S. dollar against lower-yielding currencies, such as the euro and the yen, in the business and finance sectors.
