USD weakens as disappointing NFP data boosts Fed rate cut expectations

The US dollar index fell 0.5% to 103.20 as weaker-than-expected Non-Farm Payrolls data dampened the greenback's recent rally. The US economy added only 142K jobs in the latest report, significantly below the 185K consensus estimate, while the unemployment rate ticked up to 4.3%. This disappointing employment data offset earlier dollar support from hawkish Fed rhetoric and above-forecast PCE inflation readings of 2.7% year-over-year. Markets have repriced Fed rate cut expectations, with futures now indicating a 75% probability of a 25-basis-point cut at the September meeting, up from 45% before the data release. The dollar's weakness was broad-based, with EUR/USD gaining 0.6% to 1.0950 and GBP/USD advancing 0.4% to 1.3120. Near-term dollar direction will depend on upcoming inflation data and Fed officials' commentary regarding the policy outlook amid mixed economic signals.