US dollar tanks on worst unemployment since 2021
Discover why the US dollar plummeted amid the highest unemployment rate since 2021. Learn about falling job numbers, Fed rate cut expectations, and how these factors are affecting the USD and forex markets.
Key Points
- The US unemployment rate increased unexpectedly to 4.3% in July, the highest since October 2021, suggesting growing employment issues.
- US Nonfarm Payrolls for July showed a concerning slowdown, adding only 114,000 jobs compared to the expected 175,000.
- Market sentiments are shifting, with over 80% probability through Fed Funds futures that the FOMC will cut rates by at least 1.0% by the end of 2024.
- The USD's value plunged as rate cut expectations grew, leading to a notable rise in EUR/USD, which jumped over 100 pips to 1.0920 following the employment data release.
US unemployment rate hits 4.3% unexpectedly
The US unemployment rate surged to 4.3% in July, marking the highest level since October 2021 and surpassing analysts' expectations of 4.1%. This is the second consecutive miss to the upside as June's 4.1% was higher than expected as well. This continued trend suggests an intensifying employment issue in the US, signaling potential underlying economic strains that could impact market sentiment and monetary policy.
Nonfarm payrolls signaling weakening US economy
The US economy added only 114,000 jobs in July, failing to meet the expected 175,000 and falling short of the previous year's average of 215,000. This slowdown in job creation is indicative of a weakening economy, furthering concerns about sustained growth and stability in the labor market.
USD crashes lower on Fed rate cut expectations
The increasing unemployment rate has amplified speculations about the Federal Reserve cutting interest rates in the near future. Currently, Fed Funds futures indicate an over 80% probability of a rate reduction of 1.0% or more within the remainder of 2024, reflecting growing investor anxiety about the economic outlook. These expectations have jumped significantly since the Fed's meeting on Wednesday, when markets appeared okay with rates staying above 5.25% until September. USD has quickly depreciated against major currencies in direct response to lower future yields.
EUR/USD rallies back above 1.0900 on dollar weakness
Amid shifting expectations for US interest rates and growing economic concerns, the USD has weakened significantly, prompting investors to move their assets away from the recently outperforming US. This shift has resulted in the EUR/USD pair appreciating by more than 100 pips, rallying back to 1.0920 following the underwhelming US nonfarm payrolls data.
How to trade US dollar
- Open an account to get started, or practice on a demo account
- Choose your forex trading platform
- Open, monitor, and close positions on USD pairs
Trading forex requires an account with a forex provider like tastyfx. Many traders also watch major forex pairs like GBP/USD and USD/JPY for potential opportunities based on economic events such as inflation releases or interest rate decisions. Economic events can produce more volatility for forex pairs, which can mean greater potential profits and losses as risks can increase at these times.
You can help develop your forex trading strategies using resources like tastyfx’s YouTube channel. Our curated playlists can help you stay up to date on current markets and understanding key terms. Once your strategy is developed, you can follow the above steps to opening an account and getting started trading forex.
Your profit or loss is calculated according to your full position size. Leverage will magnify both your profits and losses. It’s important to manage your risks carefully as losses can exceed your deposit. Ensure you understand the risks and benefits associated with trading leveraged products before you start trading with them. Trade using money you’re comfortable losing.