Dollar drops against peers after weaker-than-expected jobs report

By Chibuike Oguh

NEW YORK (Reuters) -The U.S. dollar fell sharply against major peers on Friday after crucial monthly jobs data showed that American employers hired fewer workers than expected, which affirms weakening labor market conditions and likely guarantees a Federal Reserve interest rate cut.

Labor Department data showed that nonfarm payrolls increased by only 22,000 jobs last month, far short of the 75,000 positions estimated by economists polled by Reuters.

The dollar fell across the board following the report. It weakened 0.70% to 147.44 against the Japanese yen, but was still on track for the second straight week of gains. The greenback dropped 0.91% to 0.79830 against the Swiss franc and was poised for the fourth consecutive week of losses against the currency.

"The data is giving evidence of what was feared, which is that what companies have experienced throughout the year because of changes in trading policy has added costs when it comes to tariffs," said Juan Perez, director of trading at Monex USA in Washington. "These costs can only be absorbed for so long and what is being manifested is that companies are struggling with hiring."

The euro was up 0.55% at $1.171675 and was set to notch a weekly gain against the dollar. The dollar index fell 0.48% to 97.767 and was set to shed 0.23% this week.

"It's definitely not a good story for the U.S. dollar and it's not a good story for the United States because what today truly establishes is that we are experiencing very serious stagflation," Perez added.

U.S. Treasury yields fell. The rate-sensitive 2-year note yield fell 8.1 basis points to 3.511%. The yield on benchmark U.S. 10-year notes fell 8.8 basis points to 4.088%.

Wall Street's main indexes, including the S&P 500, Nasdaq and the Dow, reversed gains in early trade and were all trading down.

Traders are now pricing a 10% chance of a 50-basis point cut at the Fed's next meeting later this month, while the probability of a 25-basis point cut is at nearly 90%, according to the CME's FedWatch tool.

"The pendulum has swung very far in favor of a Fed rate cut that even the market is pricing in a 10% chance of a 50 basis-point cut," said Marc Chandler, chief market strategist at Bannockburn Global Forex. "But a 50 basis-point cut would make it seem like they made a mistake by not cutting previously and I don't think they want to admit to that . . . The prudent thing to do, and I think the Fed is prudent, is a 25-basis-point cut."

The pound rose versus a weaker dollar after Friday's news that British Deputy Prime Minister Angela Rayner resigned after admitting to underpaying property tax on a new home, in a fresh blow for her boss, Prime Minister Keir Starmer.

It strengthened 0.51% to $1.35055 and was on track to gain 0.02% for the week.

Gold hit a fresh record high of $3,599.89 as the dollar weakened. Spot gold rose 1.35% to $3,593.04 an ounce.

(Reporting by Chibuike Oguh in New York; additional reporting by Lucy Raitano; editing by Philippa Fletcher and Alex Richardson)