The U.S. Non-Farm Payrolls (NFP) report for May 2023 delivered another explosive, exhilarating upside surprise with a staggering 339,000 new jobs added to the US labour force, breezing past the 195,000 estimated. With the labour market seemingly remaining strong, the Federal Reserve (FED) is left to ponder how it aims to bring inflation down to the much-desired 2% target rate. Despite FED Chairman Jerome Powell hinting at a potential rate pause come to the next interest rate meeting, stronger-than-expected jobs data for May has made the FED’s job much more complicated, potentially strengthening the case for another rate hike.

The unemployment rate ticked higher by 0.3 percentage points to 3.7% in May, up from 3.4% in April, while the number of unemployed persons increased to 6.1 million. US Average Hourly Earnings came in at 4.3%, in line with general market consensus estimates, down from 4.4% a month prior. Following the announcement, the US Dollar Index swiftly reversed its earlier decline, catapulting into positive territory for the day, while 10-year US Treasury bond yields bounced slightly higher, rebounding to 3.65%. Despite red-hot jobs data filtering through for May, the CME Ground FedWatch Tool indicates that the market expects a 70% chance that the Reserve Bank will maintain its current policy rate throughout June.