The dollar falls sharply after weak employment data in the US as the Fed becomes more cautious

The US dollar has recorded its largest weekly drop since April after it was revealed that the US economy added only 57,000 jobs in June, far below expectations. The market now estimates a 45% chance of an interest rate hike in September.

The US dollar has collapsed this week after the June employment report showed job creation well below forecasts. The US economy added only 57,000 jobs, a figure that has surprised markets and sparked bets that the Federal Reserve will soften its restrictive stance.

The labour market cools and the Fed holds back

According to data released by the US Department of Labor, non-farm payrolls grew by 57,000 in June, compared to the more than 200,000 analysts had expected. Additionally, the figures for the previous two months were revised downwards.

This weakening of the labour market reinforces the idea that the Fed will be more cautious about raising interest rates. CME Group's FedWatch tool now estimates only a 45% chance that the US central bank will raise rates at its September meeting, well below the 70% that was anticipated before the report.

The greenback has recorded its largest weekly drop since early April, according to market data. Investors interpret that the Fed will have less room to maintain a restrictive monetary policy if the economy cools.

Focus shifts to Fed minutes

This week, investors' attention will turn to the minutes of the last Federal Reserve meeting and statements from its officials. If the Fed continues to emphasize inflationary risks and leaves open the possibility of raising rates, the dollar could partially recover.

Conversely, if policymakers express greater concern about the slowdown in the labour market and economic growth, the dollar is likely to continue weakening. Most currency experts lean towards a scenario of dollar depreciation in the medium term.

For Spanish investors with exposure to the dollar, this decline means lower returns on their investments denominated in the US currency. Those planning to travel to the US or purchase products in dollars will benefit from a more favourable exchange rate.

The yen, another key factor in the currency market

The evolution of the Japanese yen will also be a determining factor in the coming weeks. Investors remain alert to a possible intervention by the Japanese government to support the yen, after the Japanese currency recovered from its lowest level in 40 years.

According to experts, as energy prices moderate and inflationary pressures show signs of easing, the Fed's room for manoeuvre to maintain a restrictive stance will diminish, making the dollar less attractive.

However, the dollar could still receive support if upcoming US economic data is more positive than expected or if inflation unexpectedly rises again. For now, the currency market is preparing for a week of high volatility.