- The US economy added 139,000 jobs in May.
- Canada’s economy unexpectedly added 8,800 jobs.
- The euro soared to a six-week high after a hawkish ECB rate cut.
Currency futures recovered on Monday after dropping in the previous session, while the dollar strengthened. The greenback gained after data revealed a bigger-than-expected increase in employment in May. This week, market participants will pay attention to inflation figures for clues on the outlook for Fed rate cuts.
US job data (Source: Bureau of Labor Statistics)
Data released on Friday revealed that the US economy added 139,000 jobs in May, exceeding the forecast of 130,000. However, it was smaller than the previous reading of 149,000. Meanwhile, the unemployment rate held steady at 4.2%.
Although the labor market performed better than expected, it has slowed down. Still, experts had expected a bigger slowdown due to the impact of Trump’s tariffs. The upbeat report gives the Fed enough room to assess incoming data before making the next move.
The report boosted the dollar, leading to a decline in currency futures. Fed rate cut expectations eased. However, the greenback had dropped at the start of the week due to uncertainty about tariffs and downbeat data from the US.
There was little progress in trade negotiations between the US and its partners. Meanwhile, Trump doubled tariffs on steel and aluminium imports, raising worries about the impacts of the move. At the same time, economic data on business activity revealed a contraction in the services and manufacturing sectors.
Elsewhere, market participants paid attention to the Bank of Canada meeting and employment figures from Canada. The Bank of Canada kept interest rates unchanged for the second time this year, boosting the loonie. Furthermore, data on Friday revealed that Canada’s economy unexpectedly added 8,800 jobs, further supporting the Canadian dollar.
Meanwhile, the euro soared to a six-week high after a hawkish ECB rate cut. The European Central Bank cut rates as expected. However, Lagarde said the central bank was now in a good place to handle the impacts of US tariffs. This meant that the central bank was almost done with rate cuts. Market participants are pricing just one more move this year. However, inflation has dropped to the bank’s target, easing pressure on policymakers to lower borrowing costs.
This week, traders will focus on US inflation figures. Soft figures will give the Fed confidence to cut rates. On the other hand, if inflation remains hot, rate cut bets will drop.
