DXY: US dollar index spikes after surprise NFP data; Fed rate decision next

The US dollar index (DXY) rose after the Bureau of Labour Statistics (BLS) released the official May jobs data. The index is trading at 96.82, which is higher than the day’s low of 96.44.

US jobs report surprise

The US economy added more than 2.5 million new jobs in May as the country started to reopen. These numbers surprised the market, which was expecting a decrease of more than 8 million.

Manufacturing payrolls increased by 225kwhile government payrolls fell by more than 585k.

The U3 unemployment rate increased to 13.3%which is better than the previous 14.7%. This number measures the percentage of working people who were not employed and those who were looking for work.

The U6 unemployment rate, which is usually a more accurate measure of unemployment, increased to a record 21.2%.This number includes the people who are working part time because they have lacked full-time opportunities. In a statement, the bureau said:

“The number of persons not in the labor force who currently want a job, at 9.0 million, declined by 954,000 in May, after increasing by 4.4 million in April. These individuals were not counted as unemployed because they were not actively looking for work during the last 4 weeks or were unavailable to take a job.”

In the same month, the participation rate increased to 60.8%from the previous 60.2%. Most importantly, wages declined by 1.0%while the number of hours increased from the previous 34.2 to 34.7.

These numbers came a day after the bureau reported that more than 1.8 million Americans filed for unemployment benefits in the previous week. They also came exactly two days after data from ADP showed that private employers shed more than 2.7 million jobs in May. Another data showed that labour productivity dropped by 0.1% in the first quarter while unit labour cost rose by 5.1%.

Most analysts believe that the weak NFP data have peaked since more companies have resumed operating. The recent manufacturing and services PMIare evidence to this. Before the report, Ethan Harris, an analyst at Bank of America said:

“May was this transition month. The layoffs were very high, but in the latter part of the month, rehiring started. This employment report is probably the peak of the disaster in the labour market.”

US dollar index under pressure

The US NFP data came at a time when the US dollar index has been under pressure. The index has declined by almost 2% in the past five days alone.

The reason for the decline is that demand for the greenback has declined as more people and investors move back to other currencies. As a result, currencies like the Australian dollar, euro, sterling, and the Canadian dollar have gained by more than 1% in the past few weeks.

After the NFP data, focus will now shift to inflation and the Federal Reserve. In the coming week, the statistics office will release the CPI and PPI data from the US.

In the same week, the Federal Reserve will release its interest rate decision. Analysts expect the bank to leave interest rate unchanged between 0 and 0.25%. They also expect the bank to retain the open-ended quantitative easing program.

US dollar index (DXY) technical outlook

The US dollar index is trading at 96.82, which is higher than the intraday low of 96.44. On the four-hour chart, the price is still below the 50-day and 100-day exponential moving average. It is also below the 23.6% Fibonacci retracement level. The positive jobs data means that the index may gain as bulls attempt to test the 23.6% retracement at 97.50.