US Dollar (DXY): Stable after US Non-Farm Payrolls Surge

Highlights

• Stable trading for the U.S. dollar despite fluctuations in the non-farm payrolls report.
• Positive job growth of 339,000 in May impacts the U.S. dollar.
• Unemployment rate rises slightly to 3.7%, influencing the U.S. dollar’s outlook.

Overview

After the release of May’s non-farm payrolls report, the U.S. dollar experienced relatively stable trading despite fluctuations. The report, issued by the Labor Department on Friday, revealed a significant surge in employment despite facing various challenges.

Strong Job Growth Continues Unabated

Both the public and private sectors added 339,000 jobs in May, surpassing the Dow Jones estimate of 190,000. This marked the 29th consecutive month of positive job growth, demonstrating the continued resilience of the U.S. economy.

Unemployment Rate Rises, Remains Low

However, the unemployment rate also increased to 3.7% in May, slightly higher than the estimated 3.5%. Despite this rise, the labor force participation rate remained unchanged. The jobless rate reached its highest point since October 2022, but it still remained close to its lowest level since 1969.

Wage Growth Meets Expectations, Hours Decrease

Average hourly earnings, an important indicator of inflation, rose by 0.3% for the month, meeting expectations. On an annual basis, wages increased by 4.3%, slightly below the estimated figure. Additionally, the average workweek decreased by 0.1 hour to 34.3 hours.

Short-Term Outlook:  Fed Uncertainty, Dollar Volatility

The Federal Reserve faces a challenging task in deciding whether and how to adjust interest rates at its policy meeting later this month, following the release of the May jobs report. This situation could potentially lead to volatility for the US Dollar. The significant growth in employment, coupled with the recent approval of the debt ceiling/budget bill by the Senate, creates an intriguing situation for the Federal Reserve in June.

The unexpectedly high payroll figures might lead some to believe that further monetary tightening is on the horizon. However, the slight increase in the unemployment rate could also provide enough reason to pause interest rate hikes at the upcoming meeting. At this juncture, it is truly a 50/50 proposition regarding a potential move in June. These developments present a complex economic scenario that the Federal Reserve must decipher during their upcoming meeting.

For some, the idea of a pause in June now seems unlikely unless upcoming inflation data turns out to be significantly lower than what economists anticipate.

Technical Analysis

The main trend is up, however, the recent price action suggests momentum may have shifted to the downside.

The Dollar Index is currently trading on the weakside of 103.631 (R1), putting it in a bearish position with more downside possible.

A sustained move under 103.631 (R1) will signal the return of sellers. If this creates enough downside momentum then we could see a near-term plunge into 102.405 (S1).

Regaining 103.631 (R1) and sustaining the move will indicate the buying is getting stronger. This could trigger an acceleration to the upside with 104.406 (R2) the first target, followed by 104.720 (R3).

For a look at all of today’s economic events, check out our economic calendar.