The Nonfarm Payroll data is causing several market participants to further believe in speculations that the Fed will not raise interest rates again.

The released US Nonfarm Payroll data tonight contained figures that missed market estimates. As a result, the US Dollar Index (DXY) fell by around 0.7% to 101.80. The greenback weakened against all major currency pairs, particularly EUR/USD and AUD/USD.

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The US Nonfarm Payroll data recorded an increase of 187k in July 2023, which was lower than the consensus estimate set at 200k. Additionally, the June figures were revised downward from 209k to 185k. This indicates a slower pace of employee hiring as a side effect of the significant Fed interest rate hikes.

Other labor market data from the US remain pretty positive. The US unemployment rate decreased from 3.6% to 3.5% in July 2023. Average hourly earnings grew by 0.4% (month-over-month) for two consecutive months, surpassing the previous consensus expectation of a 0.3% growth.

With low unemployment and strong wage growth, the Fed will likely need to maintain high-interest rates for an extended period to contain inflation further. However, the disappointing Nonfarm Payroll figures are causing some market participants to increasingly believe in speculations that the Fed will not raise rates again.

According to Neil Birrell, chief investment officer at Premier Miton Investors, the labor market does seem to be cooling, albeit slowly, "which is just what the Fed will want to see". 

"Overall, this increases the chances of rates being at their peak and the Fed pulling off the trick of getting inflation under control while keeping the economy strong," he said.

Marc Chandler, Chief Market Strategist at Bannockburn Global Forex, revealed that the disappointing Nonfarm Payroll had halted the recent rally in US Treasury yields and the US dollar.

Several long positions on the US dollar have been liquidated due to the decrease in interest rate expectations, leading him to believe that the temporary dollar appreciation is nearly over.