Dollar surges after 339K jobs data, euro slides to 2-month low

The US economy added 339,000 jobs in May, nearly double the 190,000 consensus estimate, reinforcing expectations the Federal Reserve will keep interest rates elevated and driving the dollar to a two-month high.

"The jobs data keeps the bullish momentum for the US dollar intact, as it diminishes expectations for near-term rate cuts and reinforces the Fed's hawkish stance," ING analysts said in a note Friday.

The Dollar Index climbed above 104.00, its highest level in more than two months, while the yield on the benchmark 10-year Treasury note rose above 3.7 percent. EUR/USD fell below 1.0800 for the first time since early March, with the euro under pressure from both a stronger dollar and signs of slowing economic momentum in the eurozone.

The data reshapes the policy outlook: markets now price a lower probability of rate cuts in the coming months, a shift with implications for everything from commodity prices to emerging-market currencies. The next test comes this week with the release of US Consumer Price Index and Producer Price Index data, which will determine whether the dollar's rally has further room to run.

The labor market's resilience stands in stark contrast to the eurozone, where recent purchasing managers' indexes pointed to a contraction in manufacturing activity. That divergence in economic momentum is now the primary driver of EUR/USD direction. The eurozone's slowdown, combined with a hawkish repricing of Fed expectations, has widened the rate differential between US and German government bonds, further supporting the dollar.

From a technical perspective, the Dollar Index has broken above the 105.00 resistance level, with the next upside target at 105.50 and then 106.00. On the downside, support sits at 104.50 and then 104.00. A break below 104.00 would suggest the rally is losing steam. For EUR/USD, the immediate support level is around 1.0720, with a break below that opening the door for a test of 1.0500.

The last time the dollar strengthened this sharply after a jobs report was in January, when a 353,000 print pushed the DXY above 104 and delayed market pricing for the first rate cut by three months. If this week's CPI data shows inflation remaining sticky, a similar repricing could unfold, potentially pushing the first rate cut beyond the fourth quarter.

The dollar's strength is already rippling through other asset classes. Gold edged lower as the greenback gained, while oil prices also faced headwinds. For US multinational companies, a stronger dollar reduces the value of overseas earnings, a dynamic that could weigh on the S&P 500's second-quarter earnings season.

What the CPI Data Will Decide

The Consumer Price Index report, due Wednesday, is the next major catalyst for the dollar. Economists expect headline CPI to moderate slightly, but core inflation — which excludes food and energy — is forecast to remain elevated at around 3.1 percent. A hotter-than-expected reading would cement the case for the Fed to hold rates steady, potentially pushing the dollar even higher. A cooler print, however, could cap the dollar's gains and reignite speculation about rate cuts later in the year.

Federal Reserve officials are also scheduled to speak throughout the week, and any hawkish commentary reinforcing the higher-for-longer narrative would provide additional support for the greenback. The Fed's next policy decision is due June 17-18, with markets currently pricing a 62 percent probability of a hold.

This article is for informational purposes only and does not constitute investment advice.