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US Dollar Rebounds on Stronger Than Expected NFP and Wage Inflation Data

  • The USD maintains its momentum, rising over 0.70% on Friday.
  • US Nonfarm Payrolls exceeded market expectations in May, showing a robust recovery in the labor market.
  • Chances of a Fed rate cut in September decline as positive economic signs abound.

On Friday, the US Dollar Index (DXY) extended its winning streak following stronger-than-expected labor market data. Non-Farm Payrolls, combined with an increase in wage inflation, outline a robust and resilient economy that could justify delaying rate reductions by the Federal Reserve (Fed).

Attention now turns to future Fed meetings, with the market watching for any change in monetary policy stance following the positive jobs data. The chances of cuts for June and July remain low after the strong employment data, falling to around 50% for September.

Daily Movements and Market Drivers: DXY Strengthens, Supported by Strong Economic Results

  • May Non-Farm Payrolls increased by 272,000, exceeding market projections of 185,000 and demonstrating substantial growth from April’s revised figure of 165,000.
  • The unemployment rate rose slightly to 4% from 3.9%.
  • Wage inflation data, based on the percentage change in average hourly earnings, rose to 4.1% annually, rebounding from the revised 4% in April.
  • Meanwhile, Treasury yields continued the upward trajectory, with the 2-, 5-, and 10-year yields rising more than 2% to 4.85%, 4.44%, and 4.41%, respectively.

DXY Technical Analysis: Bullish Reversal Set as Index Reclaims Key Levels

A turnaround in DXY’s fortunes is becoming more evident as it jumps above the key 20-day, 100-day, and 200-day simple moving averages (SMA). The RSI settled back above 50, signaling a return to bullish momentum, while the Moving Average Convergence/Divergence (MACD) indicator continues to print lower red bars, suggesting that buying interest is increasing.

For a sustained bullish outlook, DXY bulls need to hold the critical resistance level at 104.40, recovered after strong employment data.

Source: Fx Street

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