FOREX-US dollar gains after Friday's slump as Fed cuts loom; Swiss franc drops

By Samuel Indyk and Gertrude Chavez-Dreyfuss

LONDON/NEW YORK, Aug 4 (Reuters) - The U.S. dollar modestly recovered on Monday after a trio of market-moving events on Friday that highlighted the fragility of the greenback: a dismal U.S. jobs report, the resignation of a Federal Reserve Governor, and President Donald Trump's firing of a top statistics official.

Those developments battered the currency and prompted investors to ramp up bets of imminent Fed rate cuts.

Data on Friday showed U.S. employment growth undershot expectations 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 labour market conditions.

July’s rebound in the dollar ran into a wall last week, but so far there’s no sign of a big jump in any risk premium for holding U.S. assets, said Karl Schamotta, chief market strategist, at Corpay in Toronto.

"Strong corporate earnings are - so far - managing to overshadow fears of an incipient slowdown in labour markets, the impact of higher tariffs, the threat to the independence of U.S. statistical agencies, and the growing likelihood that the next Fed chair tries to lead monetary policy in an inflation-boosting dovish direction," he said.

"With early-autumn market outcomes likely to hinge on who Trump appoints to head the BLS (Bureau of Labor Statistics) and join the Fed in the coming weeks, traders are keeping their powder dry for now. Demand for safe-haven currencies is holding steady and flows into U.S. financial markets are continuing."

Trump fired BLS Commissioner Erika McEntarfer on Friday, accusing her of faking the jobs numbers.

An unexpected resignation by Fed Governor Adriana Kugler also opened the door for Trump to make an imprint on the central bank much earlier than anticipated. Trump has been at loggerheads with the Fed for not lowering interest rates sooner.

The developments sent the dollar down more than 2% against the yen and roughly 1.5% against the euro on Friday.

The greenback steadied on Monday, last trading flat at 147.32 yen JPY=EBS.

The euro EUR=EBS slipped on Monday to $1.1562 EUR=EBS, while sterling GBP=D3 was little changed at $1.3281.

Trump said on Sunday he will announce a candidate to fill the open position at the Fed and a new BLS head in the next few days.

Against a basket of currencies, the dollar =USD rose 0.2% to 98.82, after sliding more than 1.3% on Friday.

The dollar rose 3.4% in July, its biggest monthly gain since a 5% jump in April 2022 and first monthly rise of the year, as markets became more at ease with Trump's trade policy and economic data had remained resilient in the face of tariffs.

TREASURY YIELDS DROP AS FED CUT BETS MOUNT

The policy-sensitive two-year Treasury yield US2YT=RR fell to a three-month low of 3.659% on Monday as traders heavily upped bets of a Fed cut in September, while the benchmark 10-year yield US10YT=RR strayed not too far from a one-month low at 4.2257%. US/

Markets are now pricing an 84% chance the Fed will ease rates by a quarter-point next month owing to the weaker than expected jobs data, according to CME's FedWatch, with just under 60 basis points worth of cuts expected by December, implying two 25 basis point cuts and a 40% chance of a third. 0#USDIRPR

In other currencies, the dollar strengthened over 0.6% against the Swiss franc CHF=EBS after Trump hit Switzerland with some of the highest tariffs as part of the White House's global trade reset.

The euro rose 0.4% against the Swiss currency to 0.9351 franc EURCHF=EBS.

"We saw the franc weakening a lot after the announcement," Danske Bank's Al-Saraf said.

"If these tariffs were to be sustained, the relative downside for the Swiss economy will be quite big."