US Dollar Slumps as Job Growth Disappoints, Fed Rate Cuts Loom

The U.S. dollar weakened to multi-month lows against the euro and yen on Friday after February’s job growth came in weaker than expected, with payrolls rising by just 151,000. U.S. rate futures now price in three Federal Reserve rate cuts in 2025, likely beginning in June. Fed Chair Jerome Powell reiterated that the central bank will proceed cautiously with rate cuts while assessing the economic impact of Trump administration policies. Meanwhile, the euro surged 4.5% this week, marking its best gain in 16 years, driven by Germany’s fiscal reforms. It hit a four-month high of $1.0888 before settling at $1.0845, up 0.6%.

The dollar briefly fell to a five-month low of 146.94 yen before stabilizing at 147.99 yen. Additionally, January’s job gains were revised down to 125,000 from the initially reported 143,000, and February’s numbers fell short of economists’ expectations of 160,000. Slower wage growth also contributed to increased market bets on Fed rate cuts, reflecting a shift toward looser U.S. monetary policy.

US Dollar Slumps as Job Growth Disappoints, Fed Rate Cuts Loom

The U.S. dollar declined on Friday, hitting multi-month lows against both the euro and the yen after economic data showed that job growth in the U.S. slowed in February, falling short of expectations. This development strengthened market expectations that the Federal Reserve would move forward with multiple interest rate cuts in 2025.

Following the release of the nonfarm payrolls report, U.S. rate futures adjusted to reflect about 78 basis points of rate reductions for the year. This equates to three separate 25-basis-point cuts, with the first expected to take place in June, according to calculations by LSEG.

In a speech at the University of Chicago School of Business, Federal Reserve Chair Jerome Powell reiterated his previous statements from his congressional testimony and his January press conference. He emphasized that the central bank would take a cautious approach to rate cuts, carefully evaluating how new policies under the Trump administration could impact the broader economy before making any decisions.

Meanwhile, the euro continued its strong performance, rising 4.5% against the U.S. dollar throughout the week, marking its best weekly gain in 16 years. The surge was largely driven by Germany’s fiscal policy reforms, which boosted investor confidence. Following the jobs data, the euro reached a four-month high of $1.0888 before settling at $1.0845, up 0.6% for the day.

Against the Japanese yen, the U.S. dollar remained relatively stable at 147.99 yen, despite having briefly dropped to a five-month low of 146.94 yen earlier in the session.

The U.S. labor market slowdown was further highlighted by February’s job creation numbers. The economy added 151,000 jobs last month, following a downward revision of January’s employment data, which saw job gains adjusted to 125,000 from the previously reported 143,000. This fell short of economists’ forecasts, which had predicted 160,000 new jobs for February. The weaker labor market performance raised concerns about the overall strength of economic growth.

With job growth slowing and wage increases moderating, the expectation of multiple Federal Reserve rate cuts gained further traction. Investors are now pricing in three rate reductions of 25 basis points each, likely starting in June. Powell, however, stressed that the central bank was not in a hurry to lower rates. He reiterated that the Fed would take a measured approach, waiting for more clarity on economic trends and the potential effects of Trump administration policies before adjusting monetary policy.

The disappointing jobs report weighed heavily on the U.S. dollar, causing it to lose ground against several major currencies. The euro, benefiting from renewed investor optimism over Germany’s fiscal reforms, recorded its best weekly performance in 16 years. It climbed to a four-month peak of $1.0888 before settling slightly lower at $1.0845.

At the same time, the dollar’s performance against the yen remained under pressure, briefly touching a five-month low of 146.94 yen before rebounding to 147.99 yen. Traders reassessed the economic outlook for the U.S., factoring in the likelihood of Fed rate cuts, while the yen strengthened amid speculation that the Bank of Japan might adjust its monetary policy stance.

Overall, the weakening U.S. labor market and growing expectations of monetary easing put downward pressure on the dollar, while the euro and yen saw gains driven by their respective economic outlooks.the weakening U.S. labor market and growing expectations of monetary easing put downward pressure on the dollar, while the euro and yen saw gains driven by their respective economic outlooks.the weakening U.S. labor market and growing expectations of monetary easing put downward pressure on the dollar, while the euro and yen saw gains driven by their respective economic outlooks.