By Reuters

NEW YORK- The US dollar dropped to a four-month low on Friday after a weaker-than-expected employment report for July raised expectations that the Federal Reserve will cut interest rates by 50 basis points in September as the economy sours.

Employers added 114,000 jobs, below expectations for an increase of 175,000. The unemployment rate rose to 4.3 percent , above economists expectations that it would be unchanged on the month at 4.1 percent .

Traders are now pricing in a 71 percent probability that the Fed will cut rates by 50 basis points in September, up from 31 percent before the data was released and from 22 percent on Thursday, according to the CME Group’s FedWatch Tool.

A cut of at least 25 basis points is fully priced in for September and 116 basis points of easing is now expected by year-end.

“This is what a growth scare looks like. The market is now realizing that the economy is indeed slowing,” said Wasif Latif, president and chief investment officer at Sarmaya Partners in Princeton, New Jersey.

The dollar index was last down 1.1 percent at 103.21 and got as low as 103.12, the lowest since March 14. It is the largest one-day percentage drop since November.

Treasury yields also tumbled, with interest rate sensitive two-year yields dropping as low as 3.845 percent , the lowest since May 2023, and benchmark 10-year yields reaching a low of 3.79 percent for the first time since Dec. 27.

The US Labor Department said that Hurricane Beryl, which made landfall in Texas on July 8, had “no discernible effect” on the jobs data, discounting one theory that may have explained the weakness.

“There’s no silver lining anywhere as far as I can tell. They say they didn’t have any kind of hurricane effects, and if they did, it’s not enough to offset the degree of softness that we’re seeing,” said Steve Englander, head of global G10 FX research at Standard Chartered’s New York Branch.