Dollar Turns Bullish After US Employment Data Release: Impact on Forex Markets and Fed’s Interest Rates

Investing.com – Updated at 12:56 PM GMT

The dollar index turned bullish after the release of US employment data, which reported more jobs being added than expected and more than the previous reading, in conjunction with the unemployment rate also rising more than expected and more than the previous reading.

The dollar index rose 0.15% to 103.665 points.

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The US dollar fell in early European trade on Friday, adding to sharp losses in the previous session after the US Congress approved the debt ceiling bill, while traders await the widely watched monthly jobs report.

At 02:55 ET (06:55 GMT), the dollar, which tracks against a basket of six other currencies, was down 0.1% at 103.433, near a one-week low.

The index fell 0.6% on Thursday, its worst day in nearly a month, and is on track to drop 0.7% this week, which will be its worst week since mid-January.

The US Senate late Thursday also passed legislation raising the government’s debt ceiling of $31.4 trillion, a day after the House of Representatives did the same.

The bill is now headed to the White House for President Joe Biden to sign into law, averting what would have been its first-ever default. The Treasury Department has warned it will not be able to pay all of its debts on June 5 if Congress fails to act by that time.

The news hit the dollar, which has been a major beneficiary of the uncertainty due to its safe-haven status.

Yesterday, one of the Fed’s members stated the scenarios for the Fed’s rate cut.. He also made it clear that the Fed may stop raising interest rates during its next meeting.

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Attention now turns to the official US monthly release later on Friday, which is expected to show that the world’s largest economy added 180,000 jobs in May.

The jobs report will be one of the last pieces of data before the Fed’s meeting in June and could help determine whether it agrees to pause its rate hike campaign for 14 months.

That possibility appears to have increased over the past couple of days after both the President of the Federal Reserve Bank of Philadelphia and the Governor of the Federal Reserve announced support for such a move.

Elsewhere, the currency pair rose 0.1% to 1.0773, up to a one-week high after the European Central Bank chief signaled more data, especially with the release of a weaker-than-expected report for May on Thursday.

“Inflation is very high and is set to stay that way for a long time,” Lagarde said Thursday in a speech in Germany.

Data released on Friday showed that it rose by 0.8% in April, higher than the expected growth of 0.3%.

This is a significant improvement over the previous month’s decline of 1.1% and indicates resilience in the Eurozone’s second largest economy, something the European Central Bank will take into account.

The currency pair rose 0.1% to 1.2544, the currency pair rose 0.1% to 138.88, after dropping to 138.44 on Thursday for the first time since May 24, while the currency pair rose 0.6% to 0.6611.

The Australian dollar was boosted by news that the country’s independent wage-setting body will raise the minimum wage by 5.75% from July 1, adding to inflation fears.

It meets next week, and this could raise expectations for a quarter-point rate hike.