The dollar fell and US treasury debt prices gained yesterday after a soft jobs report pared back markets expectations for a Federal Reserve rate increase in August.
Stocks also fell on the sign that the labor market was weaker than expected and on harbingers of rising wage inflation.
The US June non-farm payrolls report showed a strong rise in average hourly earnings - a sign of mounting wage pressures.
Sustained signs of rising inflation in subsequent data reports could force the Federal Reserve to extend its rate-hike campaign, which ultimately could help the dollar recover some ground, but would weigh on government bonds and equities.
"This is exactly what the Federal Reserve does not want - lacklustre jobs growth with hourly earnings creeping up significantly. This is putting the Fed in a bind that it probably does not want to be in," said Firas Askari, head of foreign exchange trading at BMO Capital Markets in Toronto.
The US labor department said US non-farm payrolls added 121,000 workers in June, up from a revised 92,000 in May but well below the 185,000 expected by economists.
The Fed has raised interest rates 17 straight times in a two-year, monetary-tightening campaign to keep a lid on prices, and expectations of a further rate hike next month fell after the payrolls data.
If the 0.5 percent increase in June average hourly earnings were to signal a trend, it could lead the Fed to raise interest rates for longer than markets currently expect.
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