Nonfarm Payrolls Quick Analysis: Wage growth softens, and so will the Fed and the US Dollar

Is the US economy experiencing a soft landing? According to the latest Nonfarm Payrolls, the job market is slowing down to a "Goldilocks level" – not too hot nor too cold. For markets, it means continued growth, but with lower inflation and interest rates. For the US Dollar, it means the path of least resistance is down.

The US gained 339,000 jobs in May, far above 190,000 expected – but that is only one part of the story when it comes to the Federal Reserve. The participation rate held at 62.6%, but labor shortages seem to be less of an issue. Moreover, annual wage growth slowed to 4.3% YoY, lower than expected. Inflation pressures are cooling.

Hiring is high, but inflation may drop – that is how Goldilocks looks like.

Until several days ago, the hawks at the Fed seemed to have the upper hand, pushing for yet another rate hike in the upcoming June meeting – and perhaps another one. Phillip Jefferson, Vice-Chair of the Federal Reserve, changed the picture by leaning toward "skipping" further tightening this month. He was joined by several dovish peers, tilting the playing field in favor of a halt. 

The Consumer Price Index (CPI) report is the last major data point before the bank's decision, but it is unlikely to change the picture. May's Nonfarm Payrolls and the bank's tendency to pause – echoed also by Fed Chair Jerome Powell – all point to halting hikes.

As bond markets do not fully price this option, there is room for further softening for the US Dollar alongside returns on US debt. In turn, falling yields mean fresh gains for Gold.