Weak jobs print resets Fed bets

USD: Weak jobs print resets Fed bets

US payrolls delivered a clear downside surprise. Nonfarm employment fell by 23,000 in July, well below expectations for an 80,000 gain, while May and June were revised lower by a combined 103,000 jobs. The unemployment rate slipped to 4.1% from 4.2%, but that improvement came with another drop in labor force participation to 61.4%. That makes the headline jobless rate less reassuring than it looks.

The details were soft enough to trigger a sharp market reaction. Stock futures jumped, Treasury yields fell, and the curve bull steepened as traders moved to price out more aggressive Fed tightening. September hike odds fell to around 44% from 58% before the report. Markets still expect one 25bp hike by December, but the path now looks less certain.

The participation drop is important for the Fed read. Fewer workers in the labor force can pull the unemployment rate lower even when job creation is weak, or in this case negative. Payroll losses were concentrated in local government education and retail, while health care continued to add jobs at a slower pace. Wage growth also cooled, with average hourly earnings up just 0.1% on the month and 3.2% from a year earlier.

This report gives the doves a stronger case. A single weak payroll print can be dismissed, but a contraction in jobs plus heavy downward revisions is harder to ignore. The Fed can still point to sticky prices in recent ISM data, but the labor side of the mandate just became more fragile. For the dollar and front-end yields, the next move depends on next week inflation story, with both CPI and PPI prints for the month of July and whether this is the start of a softer labor trend or another noisy summer payrolls print.

CAD: Canada jobs beat lifts Loonie

Canada’s July jobs report gave the Loonie a clean relative boost. Employment rose by 75,000, well above expectations for a 20,000 gain, while the unemployment rate fell to 6.4% from 6.5%. The employment rate also edged up to 60.9%, reinforcing the view that the labour market is improving, not just benefiting from a smaller labour force. After several months of softer momentum, this was a stronger report than markets were positioned for.

The details were solid as well. Gains were led by core-aged workers, with employment up 51,000 among those aged 25 to 54, driven mostly by core-aged women. Hiring also broadened across wholesale and retail trade, finance and real estate, professional services and construction. Public administration and agriculture were the main weak spots, but the sector mix was still constructive.

Wage growth cooled, which should matter for the Bank of Canada. Average hourly wages rose 2.8% y/y, down from 3.3% in June, giving the BoC a better growth mix: firmer employment without hotter wage pressure. That reduces the need to lean dovish even as inflation concerns remain contained. The report supports the idea that Canada’s economy is recovering gradually, with less slack than feared a few months ago.

The market reaction was immediate because the US report moved in the opposite direction. US payrolls fell by 23,000, with large downward revisions, while Canada delivered a strong jobs beat. That relative labour-market swing helped pull USD/CAD from around 1.40 to near 1.3945 this morning. For the BoC, the data argue for patience; for USD/CAD, the pair should stay under pressure if US yields keep falling and Canadian data continue to firm.

MXN: A not so dovish hold, Peso carry sustained

USD/MXN is trading near 17.15, with the peso at its strongest level since May as Banxico kept the carry story alive. The central bank held the policy rate at 6.50% for a second straight meeting, in a unanimous decision that matched expectations. Forward guidance was little changed, with policymakers still signaling that rates are likely to remain at current levels while domestic and external risks are assessed. That helped the peso outperform, as rate-cut expectations faded and investors kept leaning into Mexico’s yield advantage.

The inflation message was less dovish than the rate hold alone suggests. Banxico now expects headline and core inflation to return to the 3% target in Q4 2027, later than the previous Q2 2027 estimate, after revising its 2027 forecasts higher. Officials still see risks tilted to the upside, with sticky services inflation, US economic policy uncertainty and Middle East tensions all mentioned as concerns. Growth also complicates the picture. Preliminary data point to a Q2 rebound after the Q1 contraction, but the economy is still seen operating below potential with downside risks intact.

USD/MXN is below the 20-day moving average at 17.38, the 50-day at 17.40, the 100-day at 17.43 and the 200-day at 17.62, keeping the broader trend tilted lower. The pair has cleared the recent consolidation zone and is now testing the 17.15 area, with 17.00 the next major downside marker. A rebound above 17.38–17.43 would be needed to weaken the current peso momentum. For now, MXN still has the better mix of carry, growth resilience and export support. Next week’s focus will shift to whether US CPI/PPI can keep pressure off the dollar.

Market snapshot

Table: Currency trends, trading ranges & technical indicators

Key global risk events

Calendar: August 03 – 07

All times are in EST

Have a question? [email protected]

*The FX rates published are provided by Convera’s Market Insights team for research purposes only. The rates have a unique source and may not align to any live exchange rates quoted on other sites. They are not an indication of actual buy/sell rates, or a financial offer.