The US dollar fell by 0.7% this week as stronger-than-expected non-farm payrolls boosted expectations of a Federal Reserve rate hike.

The US dollar rebounded on the back of a strong non-farm payrolls report, but despite the tug-of-war between bulls and bears, it has not reversed its weekly decline. At the start of September, the dollar showed weakness as the Federal Reserve's next policy move is being constrained by multiple conflicting signals. The upcoming key inflation report has unsettled many traders, while the rapid appreciation of the yen has triggered volatility in global currency markets. Although Friday’s non-farm data outperformed market expectations, fueling speculation that the Federal Reserve may raise rates later this month, the Bloomberg Dollar Spot Index ultimately posted a weekly loss of 0.7%. Currently, traders put the probability of a 25-basis-point rate hike by the Fed at about 60%, up from around 50% before the release of the payroll report. Noah Buffam, a strategist at CIBC Capital Markets, stated that this further elevates the importance of next week’s consumer price data. “The dollar’s performance going forward will likely depend on next week’s inflation data, and how those numbers might impact the Fed’s rate decision for September,” he said.