Recent US economic data, including payrolls, ISM indices, and JOLTS, have highlighted the resilience of the US economy, supporting the US Dollar (USD) in the short term [1][2]. Nordea’s Kristian Nummelin notes that despite higher energy prices pushing household expenses higher, the USD has benefited from robust data, though structural headwinds are expected to lead to a weaker dollar in the coming months [1]. Nordea forecasts the Federal Reserve (Fed) to remain on hold, with only a low probability of a summer rate hike, unless data continues to surprise to the upside [1].
MUFG’s Derek Halpenny observes that the USD is trading near the top of its recent range, with the DXY index reaching its highest level since the April 8th ceasefire deal announcement [2]. The market focus is on the upcoming US Nonfarm Payrolls (NFP) report, with consensus expectations at +88k jobs and a 4.3% unemployment rate [2]. Halpenny notes that stable employment and broadening inflation pressures could keep Fed tightening risks alive, while geopolitical tensions and potential oil price spikes further skew risks to the upside for the dollar [2]. The 2-year US Treasury yield has risen 21 basis points since early May, compared to just a 2 basis point increase in Germany, making EUR/USD more vulnerable to a strong US employment print [2]. However, Halpenny also highlights that weak consumer sentiment and mixed labor market confidence could quickly reverse tightening expectations if the NFP report disappoints [2].
Gold (XAU/USD) is trading just above $4,460 after failing to break above $4,500, with precious metals under pressure despite signs of growing US Dollar weakness ahead of the NFP release [3]. Geopolitical tensions, particularly the ongoing conflict involving the US, Iran, and Israel, continue to weigh on risk appetite, but the market's attention is shifting to the labor data [3]. The May NFP report is expected to show an increase of 85K jobs, following a 115K rise in April, reinforcing the view that the Fed might consider rate hikes if inflation remains persistent [3]. Technical analysis indicates fading bullish pressure for gold, with support at $4,430 and resistance at $4,515 [3].
According to Nordea, the Fed is likely to stay on hold, but a strong data print could keep rate hike risks alive, while MUFG emphasizes that the risks for the dollar are two-way depending on the NFP outcome [1][2].
CONCLUSION
The US Dollar remains supported by resilient economic data and geopolitical tensions, but faces structural headwinds in the medium term. Market participants are closely watching the upcoming Nonfarm Payrolls report, which could influence both Fed policy expectations and currency movements. Gold remains under pressure, with technicals suggesting limited bullish momentum as investors await labor market data.