NEW YORK, Aug 2 Reuters The U.S. dollar dropped on Friday after a weaker than expected employment report for July raised expectations that the Federal Reserve will cut interest rates by 50 basis points in September in an attempt to stave off a severe economic downturn.

Employers added 114,000 jobs, below expectations for an increase of 175,000. The unemployment rate rose to 4.3, above economists expectations that it would be unchanged on the month at 4.1.

This is what a growth scare looks like. The market is now realizing that the economy is indeed slowing, said Wasif Latif, president and chief investment officer at Sarmaya Partners in Princeton, New Jersey.

Traders are now pricing in 70 probability that the Fed will cut rates by 50 basis points in September, up from 31 before the data was released and from 22 on Thursday, according to the CME Group39;s FedWatch Tool.

A cut of at least 25 basis points is fully priced in and more than 100 basis points of easing is now expected by yearend.

The dollar index was last down 0.85 at 103.47, the lowest since March 21.

The euro gained 0.9 to 1.0888. The greenback weakened 1.23 to 147.53 Japanese yen and got as low as 147.02, the lowest since March 12.

Reporting By Karen Brettell Additional reporting by Chibuike Oguh Editing by Frances Kerry

Source Reuters