The US Dollar (USD) ended the week higher, rallying to near 100.10 after the US Nonfarm Payrolls (NFP) report showed the economy added 172,000 jobs in May, significantly surpassing the expected 85,000 jobs and reinforcing expectations that the Federal Reserve (Fed) could raise interest rates later this year [1][2][3]. The Unemployment Rate held steady at 4.3% for the third consecutive month, while wage growth eased to 3.4%, indicating a resilient labor market with softer pay pressure [1][2][3]. April's payroll figures were revised higher to 179,000 from 115,000 [2].
The robust jobs data triggered a sharp reaction in financial markets. The US Dollar Index (DXY), which tracks the Greenback against a basket of six major currencies, climbed to around 100.00–100.09, up 0.64%–0.67% on the day, and reached a two-month high [2][3]. The USD was the strongest against the Australian Dollar, gaining 1.26% on the day, and also posted notable gains against the Euro, British Pound, and New Zealand Dollar [1]. NZD/USD fell to its lowest level since April, trading around 0.5800 and heading for a weekly loss of nearly 3% [2]. EUR/USD retreated toward 1.1520, GBP/USD fell toward 1.3330, and USD/JPY pushed through 160.10 to 160.15 [1].
US Treasury yields surged across the curve, with the 2-year note yield rising over 12 basis points to 4.162% and the 10-year yield up six basis points to 4.538% [3]. This move reflected increased market expectations for Fed rate hikes, with the CME FedWatch Tool showing the probability of a 25-basis-point hike at the October meeting rising to 40% from 30% before the NFP report [2]. Prime Terminal data indicated a 67% chance of a rate hike in December, with a 25 bps increase fully priced in for early 2027 [3].
Fed officials responded to the data, with Cleveland Fed President Beth Hammack stating it is "reasonable to keep rates steady for now, but if recent trades persist, it might soon be necessary to act against high inflation" [3]. Meanwhile, US five-year inflation expectations declined to 2.48% from 2.53%, and the 10-year Breakeven rate fell to 2.36% from 2.38%, suggesting markets expect medium-term inflation to moderate [3].
Looking ahead, traders will focus on upcoming US inflation data, including the Consumer Price Index (CPI) and Producer Price Index (PPI), as well as jobless claims [2][3]. The Federal Reserve will enter a blackout period ahead of its June 16-17 meeting, the first led by new Fed Chair Kevin Warsh [3]. In other regions, market participants will monitor the European Central Bank's interest rate decision and key UK and Australian economic data for further direction [1][2].
CONCLUSION
Stronger-than-expected US jobs data fueled a rally in the US Dollar and Treasury yields, intensifying market expectations for a potential Fed rate hike later this year. The robust labor market print and subsequent market moves signal heightened sensitivity to upcoming inflation data and central bank communications. Investors will closely watch next week's economic releases and policy signals for further guidance.