The US dollar tumbled for yet another trading day, as bearish Non-Farm Payrolls data sent the greenback significantly lower against major trading counterparts. Officials reported that the domestic economy added a mere 92,000 jobs in the month of July—far below forecasts of a 127,000 gain through the period. The national unemployment rate subsequently jumped to 4.6 percent and left a pessimistic outlook for broader economic growth—leaving the dollar lower in its wake. A later tumble in the Dow Jones Industrial Average produced a small dollar bid, but later signs of recovery have left the trade-weighted Dollar Index at fresh two-week lows.

The Euro continued yesterday’s ascent, adding an impressive 90 points to buy $1.3785 through late New York trade. The British Pound was similarly bid, rallying 50 pips to $2.0423, while the dollar lost ¥0.50 to ¥118.72 Yen.

The widely anticipated Non-Farm Payrolls data printed far below consensus estimates and sparked the prolonged USD drop. Soft labor market growth compounded recent fears of domestic economic slowdown and likewise led bond yields significantly lower through the period. Given overall signs of weakness, markets have clearly begun to show hesitation over the future of domestic interest rates. The December Eurodollar futures contract, which settles to domestic short term interest rates, has now priced in a near 100 percent probability of a Federal Reserve 25 basis point rate cut by year-end 2007. Clearly, such expectations prove very bearish for the dollar—implying that further greenback losses are likely.

Later morning ISM Services data only further unsettled sentiment on the US economy, with the critical services sector showing its slowest growth in four months. The below-forecast headline print coincided with a lower Prices Paid result, implying that inflationary pressures continue to moderate in the broader services economy. Combined with yesterday’s ISM Manufacturing news and previous PCE Deflator prices figures, the Services report suggests that the Federal Reserve may significantly soften its stance on monetary policy through its upcoming meeting. According to DailyFX Currency Analyst Terri Belkas, Tuesday’s FOMC meeting may bring even further US dollar weakness.

Stock markets moved broadly lower on the day’s trade, with the S&P 500 a full percentage point off of yesterday’s close at 1,457.75. The NASDAQ Composite was likewise strongly lower, losing 0.9 percent 2,553.11. Large cap stocks were the least affected by the declines, however, with the Dow Jones Industrial Average losing a smaller 0.5 percent to 13,391.

Fixed income markets took advantage of recent market turmoil to head significantly higher on the trading day. The benchmark 10-year note traded nearly half a point higher to 98 and 13/32, with yields dropping to fresh three month lows of 4.70 percent.

John Kicklighter is a Currency Strategist at FXCM.