US Dollar Soars After Stronger NFP, Wage Inflation Data

USD maintains its momentum, rising by more than 0.70% on Friday. US Nonfarm Payrolls exceeded market expectations in May, showing a robust recovery in the labor market. September odds fall for a Fed rate cut as positive economic signals abound.

On Friday, the US Dollar Index (DXY) expanded its winning streak following stronger-than-forecasted labor market data. The Nonfarm Payrolls, combined with an increase in wage inflation, outline a robust, resilient economy that may justify the delay of rate cuts by the Federal Reserve (Fed).

Attention now turns to future Fed meetings, with the market eyeing any shift in the monetary policy stance following the positive labor data. The odds for cuts for June and July remain low after the strong employment data, falling to around 50% for September.

The Nonfarm Payrolls for May surged 272K, surpassing market projections of 185K and demonstrating substantial growth from April’s revised figure of 165K. Unemployment Rate slightly crept higher to 4% from 3.9%.

Wage inflation data, as indicated by the percentage change in Average Hourly Earnings, increased to 4.1% on a yearly basis, bouncing from the revised 4% in April. Meanwhile, Treasury yields followed the upward trajectory with the 2, 5 and 10-year rates climbing more than 2% to 4.85%, 4.44%, and 4.41%, respectively.

Technically; a bullish reversal sets up as the index recovers key levels. A turnaround in the DXY index’s fortune is becoming more apparent as it jumps above the key Simple Moving Averages of 20,100 and 200-days. The Relative Strength Index shifted back above 50, signaling a return to bullish momentum, while the Moving Average Convergence Divergence (MACD) continues to print lower red bars, suggesting that buying interest is picking up.

For a sustained bullish outlook, the DXY bulls need to maintain the critical resistance level at 104.40, regained after the strong jobs data.