USD Weakens to Near Two-Month Low on Soft US Jobs Data

The July US jobs report delivered a significant downside surprise, with nonfarm payrolls declining unexpectedly and triggering a broad-based sell-off in the dollar against major currencies.

This data point has shifted market pricing toward a more dovish Federal Reserve path, with rate-cut expectations for the remainder of 2026 now front-loaded.

The dollar index slipped to around 99.6, its weakest print in nearly two months, while EUR/USD climbed above 1.154 and touched seven-week highs. Sterling remained resilient near 1.35 despite Middle East headlines.

The move matters because the USD remains the global reserve currency and funding currency for carry trades; sustained weakness can amplify volatility across equities, commodities, and emerging-market assets that are often funded in dollars.

Drivers include both the labor-market softening and lingering effects from the prior week's joint US-Japan yen intervention, which removed some safe-haven bid from the greenback. Sectors most affected include US exporters (positively) and importers or dollar-funded EM borrowers (negatively).

Fixed-income markets also reacted as Treasury yields fell in tandem with lower rate-hike odds.

Traders should watch the upcoming US CPI release for confirmation of the inflation trajectory, any follow-up comments from Fed officials, and positioning data showing whether speculative shorts in USD have reached crowded levels.

A rebound in payrolls revisions or hotter-than-expected inflation could quickly reverse the move, while further downside surprises would cement the bearish USD bias into September.

Overall, the story underscores how sensitive currency markets remain to US data surprises in an environment of geopolitical uncertainty and divergent central-bank paths.