US labour markets slowed far more than expected in July, making the economy more likely to gouge the runway as it lands in the months ahead. According to data released by the Bureau of Labor Statistics, 114,000 jobs were added in the month, widely missing the 175,000 consensus forecast, and revisions to prior months saw overall gains lowered by a total 29,000 positions.

Wage gains kept decelerating, pointing to a continued softening in demand for workers. Average hourly earnings climbed just 0.2 percent month-over-month, down from 0.3 percent in the prior month, and were up 3.6 percent year-over-year.

Perhaps most critically, the unemployment rate climbed to 4.3 percent, triggering the ‘Sahm Rule’ which throughout post-war history has signalled a downturn in the US economy within an average of three months.

Traders are selling the dollar and Treasury yields are tumbling across the front of the curve as calls for aggressive policy easing become more urgent. After Federal Reserve Chair Powell tabled a September move in Wednesday’s post-decision press conference, the threshold to beginning a rate-cut cycle has been set relatively low, and today’s data should help policymakers clear it easily. We expect a more definitive signal to come at the central bank’s Jackson Hole conference in a few weeks, putting the dollar on the defensive for now.