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Surprisingly Strong US Jobs Report Sends Dollar Exchange Rates Higher

July 4, 2025 - Written by Tim Boyer

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The headline NFP number beat with a print of 147k. Unemployment dropped to 4.1% instead of rising to 4.3% as markets expected. Tariff-induced weakness is nowhere to be seen.

This report essentially ends any speculation of a July cut from the Fed and the US dollar is rallying as a result.

Due to a shortened holiday week in the US, the all-important jobs report was released on Thursday instead of Friday. The data was surprisingly strong and was particularly impactful on the US dollar, which reversed sharply higher as a Fed cut in July now looks completely off the table.

Nonfarm payrolls increased by 147,000, substantially surpassing the consensus forecast of 110,000. However, the unemployment rate was the big surprise, unexpectedly dropping to 4.1% when it was expected to rise to 4.3%. Average hourly earnings grew by 0.22% month-over-month to $36.30, slightly below the anticipated 0.3%, while year-over-year wage growth was 3.71%, under the expected 3.78%. T

Job gains were concentrated in state government and healthcare, while federal government employment continued to decline, losing 22,000 jobs, part of a 59,000 reduction since January due to cuts led by the Department of Government Efficiency.

The household survey painted a less rosy picture, with a 625,000 drop in the labour force and a 696,000 decline in household employment, raising concerns about underlying weaknesses. Some economists attributed this to policy uncertainties, including President Trump’s fluctuating tariff proposals and immigration crackdowns, which may be dampening business confidence and hiring. Michael Gapen, chief U.S. economist at Morgan Stanley, noted, “Flows from employment to not in the labor force stepped up sharply… perhaps due to a ‘chilling effect’ from immigration policy.”

Wednesday’s ADP private sector payrolls also showed weakness and instead of rising the expected 99k, the release saw the first decline in payrolls since March 2023.


That all said, the main takeaway from the jobs report is that the US economy is doing just fine. Importantly, there seems to be no adverse effects from tariffs either in inflation, or the jobs market. Some analysts have been attributing this to a potentially delayed effect from the tariffs but this report was for June and the data is getting better, not worse.

Market reactions were immediate and in some cases pronounced. Stock futures rose, reflecting optimism about sustained economic stability, but the gain of 0.35% was hardly significant and stock bulls may feel somewhat dispappointed that teh strong figures will almost certainly take a July Fed cut off the table. That is good news for the US dollar, which strengthened, and bond yields also gained. EURUSD was –0.3% and USDJPY gained 0.8%. Gold prices, sensitive to dollar strength, sank.

The report’s implications for the Fed could be significant. The stronger-than-expected job growth and lower unemployment rate reduce the urgency for rate cuts, with markets now eyeing September as a more likely timeline for any monetary easing. That hike is almost fully priced in, and markets expect the Fed Funds Rate to end the year 50bps lower. But that is not a given and any stronger inflation readings combined with tightness in the labour market may keep the Fed on a relatively hawkish footing.

Notably, the US dollar has tested key technical support at a very long-term channel. There are early signs of a reversal with this week’s rally, but a long way to go before we can say the trend has turned for sure. EURUSD is trading 1.176 and it may take some time and dollar-specific bad news for it to break 1.20, a level that could prove to be a significant barrier.


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