Markets turn cautious ahead of US May jobs report

Following Wednesday’s decisive rebound, the US Dollar Index lost its traction and erased a large portion of its weekly gains on Thursday. Markets remain relatively quiet early Friday as investors await the US Nonfarm Payrolls (NFP) data for May. US stock index futures trade flat after having recorded strong gains on Thursday and the benchmark 10-year US Treasury bond yield continues to move sideways near 2.9%. The European economic docket will feature the April Retail Sales report. Ahead of the weekend, the ISM Services PMI report from the US will be looked upon for fresh impetus as well.

The data published by the ADP showed on Thursday that private-sector employment in the US rose by only 128,000 in May. This marked the lowers print since the beginning of the coronavirus pandemic and missed the market expectation of 300,000 by a wide margin, triggering a fresh dollar selloff.

Lael Brainard, Vice Chairwoman of the US Federal Reserve, told CNBC on Thursday that it was very hard to see the case for a pause in rate hikes in September. “We’re certainly going to do what is necessary to bring inflation back down,” Brainard added and reiterated that the economy still has a lot of momentum. Nevertheless, these hawkish remarks failed to help the dollar gather strength against its rivals.

Markets expect NFP to rise by 325,000 in May following April’s increase of 428,000. Analysts at Goldman Sachs, however, said that they expect a 225,000 growth. “Job growth tends to slow during the spring hiring season when the labour market is tight—particularly in May before the arrival of the youth summer workforce—and all four Big Data employment indicators we track suggest a below-consensus report,” analysts explained.

Meanwhile, OPEC and its allies decided to ramp up oil production by nearly 650,000 barrels per day in July and August, compared to the 400,000 barrels per day increase planned initially. The group, however, refrained from excluding Russia from future quotas. Crude oil prices jumped in the second half of the day on Thursday and the barrel of West Texas Intermediate gained nearly 2.5% before going into a consolidation phase near $117.00 early Friday.

EUR/USD consolidates its gains near 1.0750 following Wednesday’s sharp upsurge. Retail Sales in the euro area are forecast to rebound in April following the 0.4% contraction recorded in March.

GBP/USD erased a large portion of its weekly losses on Thursday but seems to have lost its bullish momentum before testing 1.2600. UK markets will remain closed on Friday and the dollar’s reaction to the US data could drive the pair’s action.

Gold extended its rebound amid broad dollar weakness and broke above $1,860 on Thursday. At the time of press, XAU/USD was moving sideways at around $1,865.

For the second straight day, USD/JPY trades within a touching distance of 113.00. Bank of Japan Governor Haruhiko Kuroda reiterated earlier in the day that they must maintain an easy policy to create an economic environment where wages can rise more.

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