Some of the latest US employment data show a situation that supports the Fed's hawkish projections so that the US dollar immediately bounced.

The US dollar index (DXY) rocketed 0.75 percent to above the 105.00 threshold in the early New York session Thursday (5/January). The publication of the latest US employment data sheet turned up more encouraging numbers than consensus expectations, thus supporting the Fed's hawkish outlook against a dovish market opinion.

EUR/USD suddenly pushed back to the 1.0530 range. GBP/USD and AUD/USD fell by more than 1.25 percent. USD/JPY also jumped almost 1 percent to 133.90's.

us employement

The ISM yesterday announced the score for the US Manufacturing PMI survey results for December 2022, which worsened from 49.0 to 48.4, or slightly worse than the consensus estimate of 48.5. Nevertheless, the employment component in the report showed a significant jump from 48.4 to 51.4.

Tonight's ADP Nonfarm Employment Change and Initial Jobless Claims data confirm prime conditions in the US labor market. ADP reports the number of non-agricultural workers will increase by 235k in December 2022, much higher than consensus estimates and data for the previous period. Meanwhile, last week's jobless claims were only 204k instead of the 225k expected by consensus.

This data series opens the door for releasing Non-farm Payroll data that beat expectations on Friday. In addition, the tight US employment conditions mean that the inflation rate will remain high and require high-interest rates.

"In short, the (US) labor market has shown no sign of cooling down after a 425 basis point hike in interest rates (last year)," said Kenneth Broux, an analyst at Société Générale, "Confirmation is likely to follow today in low jobless claims and stable and should keep investors worried about pushing long-term yields more than the next level of support before tomorrow's NFP."

The Nonfarm Payroll data can potentially be the "third hammer knock" that determines whether the US needs high-interest rates in the long term. If the data misses expectations, the US dollar rebound attempt may fail, and the market will continue to speculate about the Fed's interest rate cut this year. However, better NFP data could guide the USD to gain a higher foothold.