The dollar's slide after July's shock payrolls miss echoes the 2024 summer selloff, but core inflation at 3.3 percent may keep the Federal Reserve from following the same dovish path.
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Dollar mirrors 2024 slump as jobs miss dents Fed hike odds
The dollar's slide after July's shock payrolls miss echoes the 2024 summer selloff, but core inflation at 3.3 percent may keep the Federal Reserve from following the same dovish path.
The dollar is retracing its 2024 summer slump after July payrolls fell 23,000, yet core inflation at 3.3 percent may keep the Federal Reserve from pivoting to cuts as it did two years ago.
Odds on prediction market Kalshi that the Fed holds rates steady at its September meeting jumped to 65 percent after Friday's report, from roughly 50-50 beforehand, while CME FedWatch showed a 60 percent probability of a hold. That marks a sharp reversal from late July, when markets priced almost 58 percent odds of a hike following the Fed's last meeting. Fed funds futures have pared expectations for two rate hikes by December, with the probability of a September hike sitting at 54.6 percent at Thursday's close before the report.
The July employment report showed nonfarm payrolls contracting by 23,000 against expectations for a gain of 80,000, with May and June figures revised down by a combined 103,000. The three-month average gain has slowed to just 20,000, though the household survey's unemployment rate fell for a second straight month to 4.1 percent, its lowest in two years, suggesting no broad wave of layoffs. Temporary layoffs rose by 153,000 to 921,000, while the unemployment rate dropped to 4.09 percent, down from 4.44 percent in February.
The 2024 Parallel
The setup mirrors the summer of 2024, when a July payrolls miss of 114,000 against 175,000 expected pushed the unemployment rate to 4.3 percent and triggered the Sahm rule, prompting the Fed to cut rates by 100 basis points across its final three meetings of the year. Markets began 2024 pricing up to 170 basis points of cuts, pared expectations to a single cut by June as inflation proved sticky, then swung dovish again after the Fed delivered an outsized 50 basis point cut in September. The dollar index, which formed a double top near 106 in 2024 and fell 6 percent from its July peak to late September, has this year built a similar pattern around 101.8 and is now consolidating near 99.5 support, with the 200-day moving average at 99.2.
The critical difference is inflation. In 2024, price growth cooled steadily toward the Fed's 2 percent target, giving policymakers room to ease. This year, core PCE inflation remains elevated at 3.3 percent year over year even as the labor market softens — a stagflationary mix that has kept the Fed from turning dovish. That is why the dollar's reaction to the negative payrolls print has been muted compared with 2024.
Yen Intervention and the Carry Trade
The dollar also faces a headwind from currency intervention. After the July FOMC meeting, US and Japanese authorities conducted joint intervention, triggering an unwind of yen carry trades and pressuring the dollar. CFTC data show yen short positions were sharply reduced, echoing the intervention that followed the June 2024 CPI print. Meanwhile, EUR/USD traded near 1.1552, with Scotiabank seeing momentum turn bullish toward the 200-day average near 1.1630, while Bank of America still sees scope for a pullback toward 1.12. USD/EUR spot stood at 0.86650, with consensus forecasts pointing to 0.86070 by the fourth quarter.
The August 12 CPI report is the inflection point. If inflation cools meaningfully, the dollar could break below the 99.5 support and the 99.2 moving average, opening a sustained downtrend that would ripple through carry trades and emerging-market assets. If price pressures persist, the Fed stays on hold and the dollar's downside remains limited.
This article is for informational purposes only and does not constitute investment advice.
