USD/IDR edged higher on Friday during Asian trading, recovering modestly after a slight decline in the previous session. The pair traded near 18,000 as the US Dollar held broadly steady despite weaker-than-expected domestic labor data that prompted traders to reassess the outlook for Federal Reserve policy.
The main catalyst was Thursday’s June Nonfarm Payrolls report, which showed the US economy added only 57,000 jobs, far below the market forecast of 110,000. Although the unemployment rate unexpectedly slipped to 4.2% from 4.3%, the sharp slowdown in hiring reinforced concerns that the labor market is cooling and that broader economic momentum may be fading.
Markets responded by scaling back expectations for tighter policy. The CME FedWatch tool indicated that the probability of a September rate hike fell to 52% from 66% before the release. The shift reflects growing caution among investors, who appear less convinced that the Federal Reserve will need to maintain a hawkish stance if labor conditions continue to soften.
At the same time, recent comments from Federal Reserve Chair Kevin Warsh at the ECB’s Sintra conference underscored the central bank’s focus on its 2% inflation target. He also noted that inflation risks and expectations have eased somewhat over the past month, adding to the view that policy settings may not need to become more restrictive in the near term.
In Indonesia, however, the macroeconomic backdrop has become more challenging. The country posted a surprise $1.61 billion trade deficit in May, its first since 2020, while June inflation climbed to a three-month high of 3.34%. The combination of weaker exports and stronger imports is adding pressure on external balances.
Fitch Ratings has warned that continued erosion in foreign exchange reserves could eventually pose a risk to Indonesia’s credit profile. That concern, together with a softer domestic trade position, is helping to keep the rupiah under pressure even as the dollar’s broader advance is restrained by weaker US labor data.The US Dollar Index edged lower to around 101 in Asian trading on Friday, as investors pared back expectations for further Federal Reserve tightening. The shift in sentiment followed a weaker-than-expected US employment report, which suggested the labor market may be cooling more quickly than previously assumed.
The US economy added 57,000 jobs in June, well below the 110,000 expected by economists. May payrolls were also revised down to 129,000 from 172,000, reinforcing the sense that hiring momentum has slowed. Even so, the unemployment rate slipped to 4.2% from 4.3%, while average hourly earnings rose 3.5% from a year earlier, matching forecasts and indicating wages are still expanding at a steady pace.
Market pricing now reflects a lower probability of a rate increase at the Federal Reserve’s September meeting. According to futures-based measures, the chance of at least one hike has fallen to 53% from nearly 64% on Wednesday. That adjustment has helped weigh on the dollar, which had previously been supported by expectations that policy rates could remain elevated for longer.
Attention now turns to the June ISM Services PMI, due on Monday, for a fresh read on the health of the US economy. The services sector makes up the majority of US activity, so a stronger-than-expected result could help stabilize the dollar, while a weaker figure may deepen pressure on the currency.
The payrolls report remains one of the most closely watched indicators in global markets because it offers an early signal on economic momentum and Federal Reserve policy direction. Although monthly job gains can be volatile and often subject to revision, the data tends to have an outsized impact on currencies when it diverges sharply from expectations. In this case, the softer headline reading has encouraged traders to scale back bets on additional Fed tightening.
