A surprisingly robust job market update from the United States on Friday diminished hopes for rate cuts and bolstered the U.S. dollar over the week ending June 7. The U.S. dollar's advances against the euro, the British pound, the Canadian dollar, and the Swedish krona outpaced the strength of the Japanese yen and the Swiss franc, fueling a rally in the six-currency Dollar Index. Notably, the U.S. dollar also saw significant gains against the Australian dollar.
The Dollar Index, which had dipped to a low of 103.99 on Tuesday, soared to a high of 104.95 on Friday, buoyed by resilient jobs data and a strong services PMI.
The Institute for Supply Management's data released on Wednesday showed the U.S. Services PMI jumped to 53.8 in May from 49.4 in April. This nine-month high surpassed forecasts of 50.8, reflecting robust sector performance.
Data from the U.S. Bureau of Labor Statistics on Friday revealed a 272,000 increase in payrolls for May, exceeding the revised 165,000 jobs in April and market expectations of 185,000. Average hourly earnings, on a month-on-month basis, rose from 0.2% to 0.4%, while year-on-year figures climbed from an anticipated 3.9% to 4.1%. However, the unemployment rate edged up to 4% from the expected 3.9%.
These strong labor market and services sector updates tempered rate cut expectations that had previously been buoyed by weaker-than-expected job openings data released on Tuesday and an unexpected decline in ISM Manufacturing PMI data released on Monday. Consequently, the DXY, which closed at 104.67 on the last Friday of May, finished at 104.89 on the first Friday of June, marking a gain of more than 0.21%.
The euro depreciated by 0.38% against the U.S. dollar during the week ending June 7, even as the European Central Bank executed its first interest rate cut since 2019. The EUR/USD pair declined from 1.0841 to 1.0800 despite the ECB raising its inflation outlook, fluctuating between $1.0083 and $1.0917 throughout the week.
The British pound also fell by 0.14% against the dollar as markets considered a potential delay in Fed rate cuts. The sterling dropped from $1.2739 on May 31 to $1.2721 on June 7, with the GBP/USD pair trading between a low of 1.2694 and a high of 1.2819 from June 3 to 7.
The Australian dollar plunged more than 1% against the U.S. dollar during the week, reflecting stronger-than-expected U.S. non-farm payrolls data. Concerns about the Fed's reduced scope for rate cuts pulled the AUD/USD pair down from 0.6652 to 0.6582. The pair oscillated between a high of 0.6700 on Tuesday and a low of 0.6579 on Friday. Additionally, data indicating the Australian economy grew by only 0.1% in the first quarter, compared to 0.3% in the previous quarter and market forecasts of 0.2%, heightened concerns about monetary policy divergence with the U.S., weakening the Aussie.
Conversely, the yen strengthened against the U.S. dollar over the same week. The USD/JPY pair, which closed at 157.31 on May 31, decreased to 156.70 over the week. The pair varied between 157.49 and 154.54 amid speculation about potential tapering of bond purchases by the Bank of Japan.
The possibility of a delayed Fed rate cut remains a dominant theme for currency markets globally ahead of the FOMC meeting scheduled for Wednesday. With signs of a strong U.S. labor market, market attention is now on the upcoming consumer price and producer price inflation readings. In this context, the Dollar Index rose to 105.34.
As the new week begins, sudden political uncertainty in France has influenced currency markets, driving down the common currency to 1.0743. The GBP/USD pair has decreased to 1.2714, while the AUD/USD pair has risen 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.
