The US dollar index fell on Friday morning to its lowest since March 26 after the Labour Department's employment report showed that job growth slowed sharply in May and wages rose less than expected. The weak data suggest that the loss of momentum in economic activity has spread to the labour market, which could increase expectations that the Federal Reserve will cut interest rates this year. Rising expectations of a cut have pulled the dollar 1.2% lower this week.
"It's a soft report. It's a soft enough report that a June rate cut should probably be on the table for discussion," said Greg Anderson, global head of foreign exchange strategy at BMO Capital Markets in New York. Nonfarm payrolls increased by 75,000 jobs last month, falling below the roughly 100,000 needed per month to keep up with growth in the working-age population.
"Unlike a lot of the reports we've seen where the headline is strong and the details are soft, or vice versa, this is just soft. Headline is soft, details are soft," said Anderson, noting that the average duration of a spell of unemployment rose substantially and the employed share of the population fell. Expectations for a rate cut in June jumped to 30.8% on Friday from 16.7% the day prior, according to CME Group's FedWatch tool. The market is now pricing in a 28.4% chance of two rate cuts and a 36.0% chance of three cuts by December.
Against the Japanese yen, the dollar weakened by 0.41%, last at 107.97. It was down 0.4% against the euro to 1.132. Among the biggest movers was the Canadian dollar which strengthened 0.43% to 1.331.