The US dollar index fell on Friday to its lowest since March 26 after the US Department of Labour'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 will further support forecasts 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. Tepid employment added to lacklustre data on consumer spending, business investment, manufacturing and homes sales suggesting the economy was losing momentum in the second quarter. Growth has cooled as the stimulus from last year's tax cuts and spending increases fades.
"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 rose to 22.5% on Friday from 16.7% the day prior, and for July chances rose to 69.1% from 58.0%, according to CME Group's FedWatch tool.
The market is now pricing in two to three rate cuts in 2019, with only a 1.3% chance that rates will be at their current levels in December. Against the Japanese yen, the dollar weakened by 0.23%, last at 108.16. Retreating from a two-month low, the greenback was last down 0.52% against the euro to 1.133. Among the biggest movers was the Canadian dollar which strengthened 0.67% to 1.327.
The broad cool-off in hiring happened before a recent escalation in trade tensions between the United States and two of its major trading partners, China and Mexico, which could hit hiring further. Fed Chairman Jerome Powell said on Tuesday the central bank was closely monitoring the implications of the trade tensions on the economy and would "act as appropriate to sustain the expansion."
Sterling rose to a two-week high on Friday, helped mostly by the ailing dollar. The pound was set for its first weekly gain in a month.
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