**U.S. Dollar Rallies on Strong Jobs Data: Analysis of EUR/USD, GBP/USD, USD/CAD, and USD/JPY**
*Original reporting credit: Vladimir Zernov, FX Empire*
The U.S. dollar surged to new highs on the back of unexpectedly strong non-farm payrolls (NFP) data, reaffirming the resilience of the American labor market and impacting major currency pairs across the forex markets. On Friday, June 7, 2024, the U.S. Department of Labor released the May employment report, showing job growth far exceeding expectations. As a result, the greenback gained substantial strength, pressuring rival currencies such as the euro, British pound, Canadian dollar, and Japanese yen.
This stronger-than-expected labor report is expected to influence the Federal Reserve’s policy outlook, potentially delaying the timing of any interest rate cuts. The robust data point sparked a broad-based rally in the USD, reinforcing its position as a safe-haven asset in the face of global economic uncertainty.
## U.S. Non-Farm Payrolls Surprise Markets
The U.S. labor market added 272,000 jobs in May, well above the 185,000 expected by economists. The April jobs number was revised slightly downward to 165,000 from the previously reported 175,000, but that was largely overshadowed by May’s outperformance.
Key highlights of the report include:
– **Total nonfarm payroll employment increased by 272,000 jobs in May**, significantly surpassing market forecasts.
– **Unemployment rate ticked up to 4.0%**, marking a marginal increase from April’s 3.9%, but still low by historical standards.
– **Average hourly earnings rose by 0.4% month-over-month**, equating to a 4.1% annual increase. That rise indicates growing wage pressure, which could sustain inflationary trends.
– **Labor force participation rate held steady at 62.5%.**
The strength of the job market undermines recent expectations that the Federal Reserve will cut interest rates in the near future. While inflation had shown signs of softening in preceding months, sustained wage growth and a robust employment environment suggest that inflation could remain sticky in the medium term, prompting the Fed to maintain its hawkish stance.
## Impact on Fed Policy Expectations
Before the jobs report, markets had priced in the possibility of the Federal Reserve initiating interest rate cuts as early as September 2024. The Fed funds futures market reflected an increasing probability for up to two rate cuts in 2024.
However, Friday’s strong NFP data led markets to reprice expectations, with fewer traders anticipating rate cuts within the year. According to the CME FedWatch Tool:
– The probability of a rate cut in September dropped significantly from over 60% to under 50%.
– The market now sees **just one rate cut likely in December 2024**, rather than the two that had been anticipated prior to the data release.
Fed Chair Jerome Powell has repeatedly emphasized the importance of incoming data in informing policy decisions. With continued economic strength and persistent employment gains, the central bank is likely to remain cautious. Several Fed officials, including Atlanta Fed President Raphael Bostic and Fed Governor Christopher Waller, have argued that the Fed can afford to wait for definitive signs of inflation returning sustainably to the 2% target before adjusting rates.
## Market Reaction: U.S. Dollar Rises Broadly
In the immediate aftermath of the NFP release, the DXY U.S. Dollar Index rallied above 104.80, its highest level in weeks. The index tracks the dollar against a basket of major currencies, including the euro, yen, and pound. The narrative of a resilient U.S. economy reinforced global demand for the dollar, further enhancing its safe-haven appeal.
Below is a breakdown of how key currency pairs responded to the report.
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## EUR/USD: Euro Slides as Rate Differential Widens
The euro
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