- The dollar, which has lost value all year against foreign currencies, had been making a comeback in recent weeks. But Friday’s jobs number from the BLS—and the downward revisions to previous numbers that accompanied it—“knocked the stuffing out of the dollar’s rally,” ING says.
The U.S. dollar fell off a cliff on Friday after the Bureau of Labor Statistics dramatically revised downward its estimates of how many jobs the American economy was creating. The economy, it turned out, was far weaker than everyone had assumed.
The dollar has lost value all year. It is currently down nearly 9% YTD against the DXY, an index of foreign currencies, as investors flee President Donald Trump’s tariff barriers. In June, the USD hit a low of more than 10%, but in recent weeks, the dollar has been gaining ground.
Until Friday.
The dollar fell from 100.22 on the DXY on Friday to 98.82 this morning—a relatively large move for a currency the size of the dollar.
Credit: Google Finance
“The dollar index suffered its biggest one-day drop since May 23 as markets swiftly reassessed the outlook for rates and growth,” George Vessey of Convera told clients in a note.
In notes to clients from ING, analyst Chris Turner called it: “The dollar’s handbrake turn.”
“Friday’s soft jobs report knocked the stuffing out of the dollar’s rally. Investors now attach an 80% probability to a 25bp rate cut from the Federal Reserve in September,” he wrote. “Uncertainty about the quality of U.S. data is not a good look for U.S. asset markets and could add some more risk premium both into the dollar and Treasuries.”
Goldman Sachs called it “USD: Whiplash week.” The bank also published a subdued note from chief economist Jan Hatzius that forecast U.S. GDP growth would be only 1% in the second half of the year.
His colleague Kamakshya Trivedi argued that although the “media narrative” suggested that Trump had somehow won deals that were “negative” for the U.S.’s trading partners, most foreign exports—which go to other countries—won’t be affected.
“We expect that the U.S. will bear most of the cost of the tariffs, which will weigh on its terms of trade. This is partly because of the breadth of the tariff increases, which will make it difficult for U.S. firms and consumers to find suitable substitutes,” he wrote.
That’s why the dollar is so much weaker on foreign exchanges this morning.
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