Dollar heads for steep weekly drop as Fed bets fade

The dollar headed for its biggest weekly decline in 12 weeks on Friday after weaker U.S. jobs data cooled expectations for a near-term Federal Reserve rate increase. The dollar index fell 0.2% to 100.83 after a 0.5% drop Thursday, putting it down 0.5% for the week. The euro rose to $1.1440, the pound firmed to $1.3352 and the yen last traded at 161.25 per dollar.

Yen steadies below 162 per dollar

Data showed U.S. job growth slowed sharply in June, while payroll gains for the prior two months were revised lower. Markets priced about a 45% probability of a September Fed hike, according to the CME FedWatch tool. U.S. Treasuries were closed Friday for the Independence Day holiday, leaving currency markets to absorb the payrolls signal in thinner conditions.

The yen remained the second focus after recovering from a 40-year low of 162.84 per dollar. Japanese officials said they were in regular contact with Washington on foreign exchange issues and were ready to support the currency. Officials also said they were monitoring market moves with urgency.

For global FX, the mechanism is straightforward: softer U.S. labor data lowers expected U.S. rate support, which reduces the dollar’s yield advantage and gives relief to currencies pressured by rate differentials. If that pricing holds through Monday, July 6, traders will test whether dollar-yen’s 162.84 level becomes a near-term ceiling or only a pause before fresh intervention risk.