The U.S. dollar maintained gains on Friday following an unexpected decline in payrolls for February that suggested a faster path to Federal Reserve rate cuts than markets had previously anticipated. Official data showed the U.S. economy shed 92,000 jobs last month, while the unemployment rate climbed to 4.4%.
Economists surveyed before the report had been looking for payrolls to grow by 59,000 jobs, after an originally reported 130,000 increase in January was revised down to a 126,000 gain. The surprise shortfall in non-farm payrolls prompted traders to reassess expectations for the timing of monetary easing.
Currency markets reacted quickly. In early trading, the dollar strengthened against the Japanese yen, trading up 0.2% at 157.85 yen, compared with 157.905 just prior to the release of the jobs figures. The broad-based dollar index pared some of its gains earlier but was up 0.3% at 99.307.
The euro eased, down 0.4% to $1.1558, though it trimmed part of its losses after the payrolls figures were published. Short-term interest-rate expectations shifted as well: following the jobs release, U.S. rate futures moved to price in a resumption of Fed rate cuts in September instead of October. The market still anticipates roughly 40 basis points of easing in 2026, an amount that is smaller than two standard 25-basis-point cuts.
"The large downside miss in non-farm payrolls will give the doves at the Fed something to talk about," said David Rees, head of global economics at Schroders in London. "But at least part of the downside surprise was due to strike action in the healthcare sector that ought to reverse. Beyond that, while the employment report was soft, we doubt it will be long before continued robust growth in the U.S. economy will translate into more sustained demand for labor."
Market moves after the report reflected a blend of immediate currency response and a reassessment of the Fed's policy timetable. The payrolls shortfall, together with the upward move in the unemployment rate, has encouraged investors to bring forward expected easing, while the overall magnitude of anticipated cuts in 2026 remains limited.
Trading in currency pairs and futures indicates that investors are weighing the trade-off between a softer labor market reading and the prevailing view that solid economic growth could reassert stronger demand for workers over time. For now, the dollar has capitalized on the weaker employment report, even as analysts caution that some of the decline in payrolls may be temporary due to sector-specific labor actions.