Strong Labor Market Data Lifted Dollar Last Week

(RTTNews) - A stronger-than-expected job market update from the U.S. on Friday diminished rate cut hopes and boosted the U.S. dollar during the week ended June 7. The U.S. dollar's gains against the euro, the British pound, the Canadian dollar as well as the Swedish krona eclipsed the strength of the Japanese yen as well as the Swiss franc, resulting in a rally in the six-currency Dollar Index. The U.S. Dollar also recorded strong gains against the Australian Dollar.

The six-currency Dollar Index which had dropped to a low of 103.99 on Tuesday rebounded to the week's high of 104.95 on Friday in the backdrop of the resilient jobs data and robust services PMI.

Data released on Wednesday by the Institute for Supply Management revealed the Services PMI in the U.S. soared to 53.8 in May from 49.4 in April. The highest reading in nine months also surpassed forecasts of 50.8.

Data released on Friday by the U.S. Bureau of Labor Statistics showed an addition of 272 thousand to payrolls in the month of May, surpassing the downwardly revised 165 thousand jobs in April and market expectations of 185 thousand. The average hourly earnings on a month-on-month basis which was seen edging up to 0.3 percent from 0.2 percent earlier, jumped to 0.4 percent. The year-on-year reading which was expected to be 3.9 percent increased to 4.1 percent from 4 percent in the previous month. The unemployment rate which was seen steady at 3.9 percent, however increased to 4 percent.

The strong labor market and services sector updates diminished rate cut expectations that were revived after the weaker-than-expected job openings data released on Tuesday and the unexpected decline in the ISM Manufacturing PMI data released on Monday. In the backdrop, the DXY which had closed at 104.67 on the last Friday of May, finished trading at 104.89 on the first Friday of June, gaining more than 0.21 percent.

The euro slipped 0.38 percent against the Dollar during the week ended June 7 that saw the European Central Bank deliver its first interest rate cut since 2019. The EUR/USD pair dropped to 1.0800 from 1.0841 a week earlier despite the ECB raising its inflation outlook. The pair ranged between $1.0083 and $1.0917 during the week.

The pound sterling also declined 0.14 percent against the dollar during the past week as markets digested a potential delay in rate cuts by the Fed. The sterling, which had closed at $1.2739 on May 31 dropped to $1.2721 on June 7. The GBP/USD pair traded between a low of 1.2694 and a high of 1.2819 during the week spanning June 3 to 7.

The Aussie plunged more than a percent against the U.S. Dollar during the week ended June 7 amidst stronger-than-expected non-farm payrolls data from the U.S.

Fears about the diminishing headroom for the Fed to cut rates dragged down the AUD/USD pair to 0.6582 from 0.6652 a week earlier. The pair traded between the high of 0.6700 recorded on Tuesday and the low of 0.6579 recorded on Friday. Recent data that the Australian economy expanded 0.1 percent in the first quarter versus 0.3 percent in the previous period and less than market forecasts of 0.2 percent added to concerns about a monetary policy divergence with the U.S., weakening the Aussie.

The yen however rallied against the U.S. Dollar during the week spanning June 3 to 7. The USD/JPY pair which had closed at 157.31 on May 31 decreased to 156.70 in a week's time. The pair oscillated between 157.49 and 154.54 in a week that witnessed speculation about the Bank of Japan embarking on a potential tapering in bond purchases.

Delayed Fed rate cut possibility continues to be the dominant theme for currency markets worldwide ahead of the FOMC scheduled for Wednesday. Amidst recent indications of a strong labor market in the U.S, market spotlight has turned on the consumer price and producer price inflation readings due from the U.S. during the week. Amidst the developments, the Dollar Index jumped to 105.34.

At the onset of the new week, a sudden political uncertainty in France has gripped currency markets, dragging down the common currency to 1.0743. The GBP/USD pair has declined to 1.2714 whereas the AUD/USD pair has increased to 0.6592. Ahead of the Bank of Japan's interest rate decision due on Thursday, the USD/JPY pair has increased to 156.87.