The dollar dropped on Wednesday and the euro hit a one-week high as traders bet that the Federal Reserve will cut rates more times than previously expected this year, following weaker than expected jobs data for July.

With no major U.S. economic releases on Wednesday traders continued to focus on the implications from Friday's jobs report.

U.S. employment growth was weaker than expected in July while the nonfarm payrolls count for the prior two months was revised down by a massive 258,000 jobs, suggesting a sharp deterioration in labor market conditions.

The greenback fell sharply after the report, paring gains from what had been a relatively strong July for the currency, the first month this year in which the dollar index posted a gain.

"We had the first dollar bounce under Trump's second term, and many people thought that maybe it had some legs, but I think Friday's jobs data killed it," said Marc Chandler, chief market strategist at Bannockburn Global Forex in New York. "The renewed speculation of not only a cut in September, but another cut at the end of the year, has capped the dollar's bounce."

Fed funds futures traders are now pricing in a 95% probability of a 25 basis point cut at the Fed's September meeting, up from 48% a week ago, according to the CME Group's FedWatch Tool. In total, traders see 62 basis points in cuts this year.

The Fed may need to cut interest rates in the near term in response to a slowing U.S. economy, even though it remains unclear whether tariffs will continue to push inflation higher, Minneapolis Fed President Neel Kashkari said on Wednesday.

Trump issued an executive order on Wednesday imposing an additional 25% tariff on goods from India, saying the country directly or indirectly imported Russian oil, adding to 25% tariffs already announced.

The dollar index <=USD> was last down 0.56% on the day at 98.18, the lowest since July 28. It posted a 1.35% drop on Friday, the largest one day fall since April.

The dollar spiked briefly in late morning New York time in line with Treasury yields, which may have been due to traders placing large futures bets before a 10-year Treasury auction.

The greenback extended losses after the Treasury Department saw soft demand for the $42 billion sale of the 10-year notes.

The euro (EUR=) rose 0.76% to $1.1662, the highest since July 28. It recorded a 1.48% gain on Friday.

Investors are also focused on Trump's expected nomination to fill a coming vacancy on the Federal Reserve's Board of Governors and the candidates for the next Fed Chair.

Trump said on Tuesday he would decide on a nominee to replace outgoing Fed Governor Adriana Kugler by the end of the week and had separately narrowed the possible replacements for Fed Chair Jerome Powell to a short list of four.

Source: Investing.com