US payrolls miss sends pound to $1.3377 as dollar slides 0.7%

A weaker-than-expected US jobs report drove the dollar to a two-week low, sending the pound above $1.33 as traders cut July rate-hike bets.

The US economy added just 57,000 jobs in June, less than half the 115,000 forecast, pushing the dollar lower against every developed-market currency and lifting the pound to a two-week high of $1.3377.

"This one is particularly important because Fed Chair Kevin Warsh had raised concerns about rising inflation, pushing up the dollar and Treasury yields," said Colin Cieszynski, portfolio manager and chief market strategist at SIA Wealth Management. "Today we had this abrupt reversal."

The headline miss was compounded by downward revisions totaling 74,000 jobs across April and May, bringing the three-month average to 111,000 — the weakest stretch since early 2024. The unemployment rate edged down to 4.2% from 4.3%, though largely because the labor force participation rate fell 0.3 percentage point to 61.5%, its lowest since March 2021. Average hourly earnings rose 0.3% month-on-month to $37.64, keeping annual wage growth at 3.5%.

The data shifts the debate around Federal Reserve policy. Markets now assign less than a 20% probability of a rate hike at the July 28-29 meeting, down from roughly 30% before the release, while September odds fell to about 60% from 75%. If the labor market continues to cool, the window for additional tightening may close entirely.

The pound surged 0.7% to $1.3377, its strongest level since mid-June, as the dollar sold off across the board. The yen strengthened alongside the euro, with the dollar index falling to its lowest in two weeks. The move reversed a trend that had seen the greenback gain through much of the second quarter on expectations the Fed's next move would be a hike rather than a cut.

"The headline gain of 57,000 jobs is clearly disappointing, but it follows a familiar pattern," said Andrew Hollenhorst, US chief economist at Citi Research. "In 2024 and 2025, job growth averaged about 124,000 per month between March and May before slowing to an average of just 34,000 jobs in June. Ironically, today's report may be one reason the Fed does not deliver insurance rate hikes at the September FOMC meeting."

Rate Differentials Drive the Dollar Lower

The dollar's decline was most pronounced against the pound and yen, currencies whose central banks have maintained or signaled tighter policy stances. The 2-year Treasury yield fell 4 basis points to 4.13%, unwinding part of the run-up that followed hawkish comments from Warsh at the ECB's Sintra forum earlier this week. The last time payrolls printed this far below consensus was in February, when the economy added 39,000 jobs, and the 2-year yield fell 6 basis points in the session that followed.

Gold rallied back above $4,100, recovering from an eight-month low of $3,942 hit three days earlier, as the weaker dollar removed a major headwind for the precious metal. The S&P/ASX 200 gold index surged 7.4% in Sydney trading, with miners including Northern Star Resources and Evolution Mining gaining more than 8%.

The broader equity response was mixed. The Dow Jones Industrial Average rose 1.1% to a record close, while the S&P 500 finished flat and the Nasdaq 100 fell 1.6%, dragged lower by a semiconductor rout that saw the SOXX index drop 11.6% over two sessions. The divergence reflects a market rotating out of rate-sensitive tech names into value and defensive sectors on the view that cooling labor demand reduces the urgency for further tightening.

What Comes Next

The next major data point for the Fed will be the June consumer price index, due July 15, which will test whether the disinflation trend remains intact after oil prices surged earlier this year. Brent crude has since fallen back to about $68 a barrel, erasing its entire wartime rally, which could ease headline inflation pressures in coming months.

"Ongoing labor market stability likely leaves the FOMC focusing on upcoming inflation data to determine its appetite for tightening policy," said Kay Haigh, global head and CIO of Fixed Income and Liquidity Solutions at Goldman Sachs Asset Management. "We still see a path for the Fed to stay on hold for the rest of the year, however any further upside surprises to inflation could convince the committee to hike sooner rather than later."

This article is for informational purposes only and does not constitute investment advice.