The Nonfarm Payroll data helped the US dollar strengthen against some major currencies, particularly the Japanese yen and the euro.

The US dollar index (DXY) rose to a daily high of 101.77 after the release of the Nonfarm Payrolls data on the evening of May 5. However, market participants are also wary of regional US banking sector developments, which shows signs of instability.

dxyDXY Daily chart via TradingView

The Nonfarm Payroll data for the US increased by 253k in April 2023, significantly exceeding the consensus estimate of 180k. The US unemployment rate also decreased from 3.5% to 3.4% during the same period. Average hourly earnings also grew by 0.5% (month-over-month), faster than the 0.3% growth in the previous period.

The US employment data released tonight was uniformly positive, providing a positive catalyst to offset the dovish bias in yesterday's FOMC statement. As a result, the US dollar strengthened against some major currencies.

"Strong hiring and low unemployment lifting the dollar and easing concerns of a recession and prospects of rate cuts later this year," said Joe Manimbo, senior FX analyst at Convera.

The USD/JPY exchange rate jumped around 0.6% to above 135.00, while the EUR/USD continued to weaken to the range of 1.0960s, falling for the second time after being hit by the European Central Bank's interest rate decision yesterday. However, buying the US dollar did not occur widely as the market was also wary of signs of turmoil in US banks.

Yesterday, the stocks of several regional US banks tumbled. The shares of PacWest Bank, based in Beverly Hills, fell more than 50%. The shares of First Horizon from Memphis also plunged after they canceled their merger plan with TD Bank (Canada) due to high licensing uncertainty. The shares of Western Alliance from Arizona also fell 38% after the Financial Times reported that they wanted to sell part or all of their business.

"The Fed and the ECB might go on merrily hiking rates, but the renewed crisis in US regional banks is the main reason for the firmly risk-off tone to today's session," said IG chief market analyst Chris Beauchamp earlier. "Other US banks are coming under heavy pressure, threatening once again to upend the stability of the US financial system less than a day after Jerome Powell pronounced it healthy."