A robust US Nonfarm Payrolls (NFP) report for May, showing 172,000 new jobs versus an 85,000 consensus estimate, has triggered a significant rally in the US Dollar (USD) against major global currencies [1][3][4][8]. The April NFP figure was also revised upward to 179,000 from 115,000 [1][4]. This strong labor market data has sharply increased market expectations for US Federal Reserve (Fed) rate hikes, with the CME FedWatch tool indicating a 73.8% probability of at least one hike this year, up from 45.2% a week prior [1][2]. Markets now price around 40 basis points of cumulative Fed hikes toward 2027 [8].
The USD's strength has been felt across multiple currency pairs. The Australian Dollar (AUD) fell to an almost eight-week low near 0.7025 against the USD, as traders shifted from expecting two Fed rate cuts to anticipating hikes [1]. The Canadian Dollar (CAD) weakened, with USD/CAD reaching 1.3945, its highest since April 3, as the USD's rally was further supported by geopolitical tensions in the Middle East and rising oil prices [2][4]. The Japanese Yen (JPY) extended losses, with USD/JPY breaching the 160.00 level and trading at 160.30, erasing gains from previous intervention efforts by Japanese authorities [4]. Japan's foreign reserves fell in May by the largest amount since 2000, reflecting significant intervention to support the JPY [4].
The Euro (EUR) also declined sharply, with EUR/USD plunging toward 1.15 after the US jobs data, and US Treasury yields rising by about 15 basis points, with the 2-year yield at 4.19% [7][8]. Germany's factory orders fell 3.8% month-on-month in April, missing expectations and further weighing on the EUR [7]. Danske Bank notes that the market reaction was immediate, with risk sentiment weakening and the EUR/USD pair moving lower [8]. The focus now shifts to upcoming US CPI data, expected to show a year-on-year increase to 4.2% from 3.8%, and the European Central Bank (ECB) meeting, where a hike to 2.25% is widely anticipated [1][3][8].
Other currencies were also impacted. The British Pound (GBP) slid sharply against the USD, with GBP/USD dropping to the low 1.33s and testing key support at 1.3300 [6]. The Indian Rupee (INR) saw some support after the Reserve Bank of India (RBI) held rates at 5.25% and introduced measures to attract foreign capital, but the USD/INR still fell 0.9% to 94.94 on Friday [5].
Analysts from DBS and Danske Bank highlight that the USD is likely to remain supported into the June FOMC meeting, but its trajectory will depend on both incoming data and the Fed's ability to maintain policy credibility amid structural challenges [3][8]. Forward-looking statements indicate that markets are closely watching the US CPI release and central bank meetings for further direction [1][3][8].
CONCLUSION
The stronger-than-expected US jobs report has driven the US Dollar higher against all major currencies, shifting market expectations toward Fed rate hikes and triggering broad declines in the AUD, CAD, JPY, EUR, GBP, and INR. With key US inflation data and central bank meetings ahead, markets remain focused on the Fed's next moves and global monetary policy responses.