The US Dollar fell to fresh 22-year lows, as a dismal Non Farm Payrolls employment report sent the greenback and the Dow tumbling through the afternoon. The US economy saw the worst employment change in four years, as the headline NFP number printed at a shockingly low 4,000 jobs lost. This single-handedly boosted expectations for US Federal Reserve interest rate cuts through year end and worsened rate differentials for the greenback. Yet hopes for falling borrowing costs were unable to lift stock indices, which saw themselves over 100 basis points lower at time of writing.

The Euro rallied just 54 basis points short of all-time highs against the dollar, trading to $1.3794 before easing on profit taking. The British Pound likewise saw significant gains against its transatlantic counterpart, scaling fresh monthly highs at $2.0323 before a strong Japanese Yen rally stifled further Sterling advances. Indeed, the Japanese Yen was the largest gainer among major currencies. The downtrodden dollar plummeted ¥1.90 to ¥113.40.

The morning’s Non Farm Payrolls report doomed the greenback to extended declines, as the US economy saw a shockingly poor 4,000 jobs lost versus consensus forecasts of a 100,000 jobs gained. There were very few positives underneath the bleak headline, with the bulk of losses coming from the construction and manufacturing sectors of the economy. These branches of industry lost 46,000 and 22,000 jobs, respectively—their worst performance since July of 2003. A services sector gain of 60,000 in payrolls was not nearly to offset the drop and was the worst result in over two years. The unemployment rate remains surprisingly unchanged at 4.6 percent, but this was largely a function of a drop in the labor force participation rate to its lowest since 1988. The situation for domestic laborers is likely to grow worse through the medium term, as a continued housing recession and the recent credit crunch to slow growth in other areas of the economy.

Given the disappointment in NFP figures, markets significantly boosted expectations for Federal Reserve interest rate cuts through year end. Taking a look at the futures market, the implied Fed Funds target rate for December dropped an incredible 14 basis points to 4.44 percent, while September contracts showed an implied yield of 4.94 percent. This reflects clear expectations that the Fed is likely to cut rates by as much as 50 basis points through its September 18 meeting, with a chance for over 75 basis points in rate cuts through the end of the year. The prospects of falling interest rates will only intensify selling pressure on the US dollar, which has broken support at 22-year lows on the trade-weighted dollar index.

Domestic equity markets dove lower on the labor data, with news of potential bank defaults only accelerating the Dow sell-off. The closely followed Dow Industrials Average shed 1.6 percent just hours ahead of the close, reaching its lowest levels in over a week. Yet the index remains 5.5 percent improved on a year-to-date basis—arguably leaving ample room for further falls. The S&P 500 was hardly spared from the pronounced drop, falling 1.4 percent to 1,457. Meanwhile, the tech-heavy NASDAQ Composite was the largest percentage decliner at 49 points off to 2,565.

Fixed income markets saw remarkable rallies on fears of a pending US economic recession, with the 2-year Treasury Note losing a whopping17 basis points in yield to 3.91 percent. The moves in longer-dated debt were similarly pronounced, with the 10-year benchmark yield down 13bp to a woefully low 4.38 percent. The massive rallies in bonds underline bearish outlook for the US economy, with economic data only to get worse on the recent shift in momentum.

David Rodriguez is a Currency Analyst at FXCM.