The US dollar index rallied on Friday after stronger-than-expected jobs data, pushing bond yields higher and triggering a sharp equity market sell-off.
US Dollar Strengthens on Robust Labor Market Data
The US Dollar Index (DXY) surged on Friday following a stronger-than-expected US jobs report, which dampened expectations for near-term Federal Reserve rate cuts. Nonfarm payrolls rose 172,000 in May, nearly double the 85,000 forecast, while the unemployment rate held steady at 4.3%. Prior-month revisions added another 93,000 jobs, signaling sustained labor market resilience.
Bond markets reacted swiftly, with the 2-year Treasury yield climbing 10 basis points to 4.15% and the 10-year yield rising 5.5 basis points to 4.53%. The steepening yield curve underscored investor concerns about prolonged tight monetary policy. Equity markets suffered, with the NASDAQ Composite posting its worst daily drop since April 2025, closing below its 200-hour moving average at 25,709.43.
Technical Breakdown and Risk Sentiment
The S&P 500 and NASDAQ both closed below key technical levels, signaling bearish momentum. High-growth tech stocks, including AI-related names, led declines amid fears of increased equity dilution. Meta's potential $85 billion stock offering highlighted rising capital costs for technology firms.
Commodities faced pressure as the stronger dollar and rising yields weighed on gold and Bitcoin. Gold tumbled 3.29% to $1,852.83, while Bitcoin sank over 16% for the week. The Canadian dollar weakened slightly against the greenback despite robust domestic employment data, which showed 87,800 new jobs and a drop in unemployment to 6.6%.
Implications for Forex Traders
The DXY's rally reinforces the dollar's dominance amid sticky inflation and resilient growth. Traders should monitor upcoming CPI data, with core inflation expected to rise 0.5% monthly and 2.9% annually. The Federal Reserve's June meeting, featuring new Chair Kevin Warsh, may signal a hawkish pivot if labor market strength persists.
Key technical levels for DXY include support at 105.00 and resistance at 107.50. A break below 104.00 could trigger further downside, while sustained moves above 108.00 may indicate extended dollar strength.
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