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The prospect of a more enduring dollar advance has risen materially.
The dollar rose against the pound, euro and G10 peers after the U.S. Bureau of Labor Statistics said the economy added 172K jobs in May, easily exceeding a consensus market bet for 82K jobs to have been created during the month.
Potentially even more impressive was the revelation that the figures from the previous two months were revised up by a total 93K, bringing the three-month average pace of job creation up to 188K, from 48K ahead of the update.
Average hourly earnings climbed 0.3% month/month, accelerating from the 0.2% in the prior month, rising 3.4% y/y.
"The dollar is advancing and Treasury yields are up in spectacular fashion across the policy-sensitive front end of the curve as traders move to fully price in a rate hike by the Federal Reserve’s December meeting," says Karl Schamotta, strategist at Corpay.
"The euro, pound, and yen are coming under selling pressure as rate differentials tilt further toward the greenback," he adds.
The pound-to-dollar relinquishes an earlier solid daily gain to go 0.10% into the red at 1.3414, the euro-to-dollar slides to 1.1597 (-0.12%). A report we published earlier in the day warned of the risks of a stronger-than-expected number, and that prediction has been proven correct.
The U.S. two-year yield surges 2.27% on the day to 4.137%, signalling a material uplift in expectations that the Federal Reserve would need to respond to current conditions with a rate rise in the coming months.
Above: 2-year bond yields jump, reflecting a major recalibration higher in U.S. interest rate expectations.
These data underscore 2026's trend of steadily strengthening U.S. economic numbers, defying the expectations for the material slowdown that many economists forecast at the start of the year.
The market has therefore understandably moved from betting on Fed rate cuts to anticipating a rise. At the very least, the Fed will have to drop its easing bias at the June FOMC meeting.
For the dollar, that's a fundamentally supportive development that could underscore further gains in the coming weeks.
Above: GBP/USD drops in the wake of the NFP report.
"This is a monster jobs report for Kevin Warsh, the new Fed chair, to digest, and it is likely to impact his tone when he gives his first press conference after the FOMC meeting on 17th June. This report adds to pressure on the Fed to drop its easing bias, but it may not trigger a rush to price in rate hikes anytime soon," says Kathleen Brooks, an analyst at XTB.
Indeed, she points out there is still a less than 40% chance of a hike from the Fed by year end after this NFP report.
That means there's still ample space for the market to move towards a rate hike.
The key risk to the USD trend would be a peace deal between Iran and the U.S. and the reopening of the Strait of Hormuz, which would sink oil and gas prices and limit the current inflationary boost.
That could allow new Fed Chair Kevin Warsh to argue that it's best to do nothing for now, which could help limit the dollar's advance.
But for now, its advantage dollar.