Struggling Job Numbers Hinder Dollar's Recovery
U.S. Economy Slows Down Slightly Amid Trade Uncertainties
The U.S. economy is experiencing moderate growth, but with signs of labor market softening and tariff-related pressures, according to recent economic outlooks. GDP growth is projected to be around 1.5% by the end of 2025, with core inflation near 3%.
In the first half of 2025, non-farm payrolls increased by about 130,000 jobs per month, a decrease from the 168,000 average monthly gains in 2024. The unemployment rate remains low at about 4.1%, but measures including underemployment are showing slight upticks. Job openings and hiring rates have decreased somewhat, especially in sectors concentrated in healthcare, social assistance, leisure, and hospitality.
Trade developments have led to higher tariff rates near 17% by year-end, introducing uncertainty and pressure on business investment and consumer prices that could impact growth. However, foreign investment agreements and delayed tariff pass-throughs are mitigating some of these effects.
The Federal Reserve is expected to implement two interest rate cuts this year in response to these trends. The Fed’s policy is expected to shift focus more toward employment metrics, with the anticipated rate cuts aiming to support the weakening labor market.
Equity markets have generally performed well year-to-date, with gains in large-cap growth stocks, especially in tech and AI sectors, despite volatility and inflation concerns. Consumer confidence has declined, but the economy remains resilient.
In other currency news, the DXY, a measure of the Dollar's strength against a basket of 6 currencies, closed at 99.14 on the first Friday of August, up from 97.64 on the last Friday of July. The Dollar Index (DXY) rallied 1.54 percent during the week ended August 1. The Euro slipped 1.33 percent against the Dollar, with the EUR/USD pair dropping to 1.1586 from 1.1742 a week earlier. The Aussie plunged against the U.S. Dollar during the week, with the AUD/USD pair slipping 1.37 percent from 0.6567 to 0.6477.
The weaker-than-expected jobs data from the U.S. has increased the likelihood of a rate cut by the Fed, with the CME FedWatch tool showing expectations of a quarter point rate cut by the Fed in the September FOMC at 77.7 percent. The addition to non-farm payrolls in the month of July was 73 thousand, lower than the expected 110 thousand. The number of job openings in the U.S. fell to 7.44 million in June from 7.71 million in May.
Inflation data for July remained steady at 2% in the Eurozone, while the ISM manufacturing PMI declined to 48 in July, missing forecasts of 49.5. The year-on-year PCE Price Index for June increased to 2.6 percent, exceeding expectations of a 2.5 percent increase. The core component of the PCE Price Index for June came in higher than expected at 2.8 percent.
The Japanese yen rallied mildly against the greenback, with the USD/JPY pair decreasing from 147.67 to 147.38. The pound sterling slipped 1.18 percent against the dollar, with the GBP/USD pair dropping from $1.3439 to $1.3280.
In summary, the U.S. economy in mid-2025 shows stable but slower growth, a gradually softening labor market, and monetary policy support via expected rate cuts, all under the cloud of trade-related uncertainties mainly from tariffs.
- In light of the U.S. economy's moderated growth and the softening labor market, many companies may find it challenging to secure financing, potentially impeding business expansion.
- As the Federal Reserve is anticipated to implement two interest rate cuts to support the weakening labor market, the decisions made in the realm of finance will greatly impact businesses' investment strategies.
