May 2025 US Employment Report: Goldilocks, But Tariff Uncertainty Remains

Forex

Economic

Summary:

Headline nonfarm payrolls rose by +139k last month, modestly aboveh consensus estimates for a +125k increase, but well within the tighter than usual forecast range of +75k to 190k.

Headline nonfarm payrolls rose by +139k last month, modestly aboveh consensus estimates for a +125k increase, but well within the tighter than usual forecast range of +75k to 190k. Simultaneously, the prior two payrolls prints were revised by a sizeable net -95k, in turn taking the 3-month average of job gains to +135k, still considerably above the breakeven pace

May 2025 US Employment Report: Goldilocks, But Tariff Uncertainty Remains_1

Digging a little deeper into the payrolls print, job gains were relatively broad-based, though for the second month running Education led the way, closely followed by Leisure & Hospitality, while on the flip side Professional & Business Services, Manufacturing, and Mining & Logging were the only sectors seeing MoM declines in employment.

May 2025 US Employment Report: Goldilocks, But Tariff Uncertainty Remains_2

Sticking with the establishment survey, the jobs report once again pointed to earnings pressures remaining contained. Average hourly earnings rose 0.4% MoM, a touch hotter than expected, which in turn saw the annual rate also tick higher, to 3.9% YoY.

Data of this ilk continues to reinforce the FOMC's now-familiar view that the labour market is not a source of significant upside inflation risks at the current juncture. Those risks, though, are obviously still present, stemming primarily from President Trump's tariff policies, even if said price pressures are likely to prove temporary in nature.

May 2025 US Employment Report: Goldilocks, But Tariff Uncertainty Remains_3

Turning to the household survey, unemployment held steady at 4.2%, in line with expectations, though labour force participation surprisingly dipped to 62.4%, below the bottom of the forecast range.

As has been the case for some time, however, some degree of caution is required in interpreting this data, which has been unusually volatile this cycle, as the BLS continue to grapple with falling survey response rates, and the rapidly changing composition of the labour force.

May 2025 US Employment Report: Goldilocks, But Tariff Uncertainty Remains_4

As the jobs report was digested, money markets, per the USD OIS curve, underwent a very marginal dovish repricing, continuing to fully discount the next 25bp cut for October, but now pricing around 48bp of easing by year-end, compared to 53bp pre-release.

May 2025 US Employment Report: Goldilocks, But Tariff Uncertainty Remains_5

Zooming out, it's difficult to imagine the May jobs report significantly shifting the outlook from a monetary policy perspective. For the time being, the FOMC remain firmly in ‘wait and see' mode, buying time to assess the impact of tariffs, plus the associated policy uncertainty, and how this shifts the balance of risks to either side of the dual mandate. Furthermore, policymakers are also seeking to ensure that inflation expectations remain well-anchored, in spite of any transitory tariff-related price pressures.

Consequently, Powell & Co, who enter the pre-meeting ‘blackout' period at close of play today, are likely to remain on the sidelines for the time being. Though the direction of travel for rates clearly is still lower, the prospect of a rate cut before Q4 remains a long shot.

Source: Pepperstone

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Warren Takunda

Economic

Donald Trump's trade war hit Canada hard in April as exports to the U.S. plummeted, widening a trade gap that will require the domestic currency to depreciate unless it closes.

Canada reported a negative trade balance of C$7.14BN in April, easily surpassing a 1.5BN deficit that was expected by economists.

This represents a sizeable surprise that points to struggles for the Canadian economy and will raise questions as to whether the Bank of Canada will be required to cut interest rates further in the coming months.

The deterioration was driven by a collapse in exports to the U.S. (exports were down to 60.44BN from 67.76BN in March).

"Trade fell off a cliff in April," says Randall Bartlett, Deputy Chief Economist at Desjardins Bank. "This was the largest trade deficit going back to at least 1988, and was significantly below the consensus of economists."

Deficits matter for currencies not in the short term, but in the long term. Hence, the Canadian Dollar was relatively stable following the release. However, the warning is clear: if this situation persists, the currency must adjust lower to make Canada's exports cheaper and imports more expensive.

"The shock was actually much greater than anticipated, at least with regard to trade data," says Jocelyn Paquet, an economist at National Bank of Canada.

"U.S. tariffs are starting to come into force, with customs revenue data showing rapid rises. China accounts for a large share of this, but tariffs on non-Chinese goods are also reaching the highest levels for decades," says Adam Slater, Lead Economist at Oxford Economics. "Based on daily Treasury data, we can see that customs receipts as a share of imports rose from a little more than 2% at the start of this year to an estimated level of nearly 8% in May."

U.S. Census Bureau data shows the average U.S. tariff rate on imports from Canada rose to 2.3%, with some industries seeing a far larger rate, like autos, steel & and aluminium.

Nathan Janzen, Assistant Chief Economist at Royal Bank of Canada thinks the deficit can close as Canada is in a better position than most other countries, owing to the North American free trade agreement (CUSMA) that exists between the U.S., Mexico and Canada.

"Almost 90% of Canadian exports appear to have accessed the U.S. market duty free in April," he explains.

"We continue to expect that current rules, if maintained as currently in place, would leave Canada with the lowest tariff rate of any major U.S. trade partner," he adds.

RBC thinks this puts Canadian exporters in a stronger position than other countries to compete for U.S. import market share.

"The concern remains, though, that U.S. tariff hikes have been so large — and uncertainty so high surrounding their announcements — that U.S. economic growth will slow with negative implications for close U.S. trade partners like Canada," he warns.

Source: Poundsterlinglive

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Michelle

Economic

Forex

The economic data expected to be released in the US has finally been shared:

Average hourly earnings: +0.4% (expected: +0.3%)
Nonfarm payrolls: +139K (expected: +130K)
Annual salary increase: +3.9% (expected: +3.7%)
Unemployment rate: 4.2% (expected: 4.2%)
Private sector employment: +140K (expected: +120K)
Manufacturing employment: -8K (expected: -5K)
Average working hours: 34.3 hours
Labor force participation: 62.4% (expected: 62.6%)

According to LSEG data, employment growth expectations ranged from 75,000 to 190,000.

In a Reuters poll, the market expectation was 130,000, a significant drop from the 177,000 figure released in April. The unemployment rate was expected to remain stable at 4.2%.

Bank of America (BofA) had expected a 150,000-plus increase, above expectations, anticipating resilience in the labor market. The bank says this could prompt the Fed to keep interest rates steady for an extended period. BofA analysts say markets are more focused on the “recession side of stagflation.”

On the other hand, UBS Chief Economist Paul Donovan said that many forecasts were below market expectations. “Companies may have slowed hiring due to uncertainty about trade policies. However, this is unlikely to lead to an increase in layoffs. This means that rate cuts will have limited impact at the moment. However, if consumer demand weakens, rate cuts will become more critical,” Donovan said.

Source: CryptoSlate

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Warren Takunda

Central Bank

China–U.S. Trade War

World shares were mixed Friday ahead of an update on the U.S. job market that will offer insights into how the economy is faring.

The future for the S&P 500 gained 0.4% while that for the Dow Jones Industrial Average was up 0.5%.

Germany’s DAX lost 0.3% to 24,258.74, while the CAC 40 in Paris edged 0.1% lower, to 7,785.19. Britain’s FTSE 100 edged 0.2% higher to 8,825.82.

In Asian trading, Tokyo’s Nikkei 225 index rose 0.5% to 37,741.61, while the Kospi in South Korea jumped 1.5% to 2,812.05.

Hong Kong’s Hang Seng lost 0.2% to 23,859.52 and the Shanghai Composite index edged less than 0.1% higher, to 3,385.36.

Australia’s S&P/ASX 200 shed 0.3% to 8,515.70.

India’s Sensex gained 0.8% after the Reserve Bank cut its key interest rate by a half a percentage point to 5.50%.

On Thursday, the S&P 500 fell 0.5% for its first drop in four days. After sprinting through May and rallying within a couple good days’ worth of gains of its all-time high, the index at the center of many 401(k) accounts has lost momentum.

The Dow dropped 0.3%, and the Nasdaq composite sank 0.8%.

The U.S. Labor Department is due to report how many more jobs U.S. employers created than destroyed during May. The expectation on Wall Street is for a slowdown in hiring from April.A resilient job market has been one of the linchpins that’s propped up the U.S. economy, and the worry is that all the uncertainty created by President Donald Trump’s on-and-off tariffs could push businesses to freeze their hiring.

A report on Thursday said more U.S. workers applied for unemployment benefits last week than economists expected. The number remains relatively low compared with history, but it still hit its highest level in eight months.

The data came as Procter & Gamble, the giant behind such brands as Pampers diapers and Cascade dish detergent, said it will cut up to 7,000 jobs over the next two years. Its stock fell 1.9%.

The day’s heaviest weight on the market was Tesla, which tumbled 14.3%. It’s lost nearly 30% of its value so far this year as CEO Elon Musk’s relationship with Trump sours amid a disagreement over the president’s signature bill of tax cuts and spending. In after-hours trading Tesla gained 0.8%.

Hopes that Trump will lower his tariffs after reaching trade deals with other countries have been among the main reasons the S&P 500 has rallied back so furiously since dropping roughly 20% from its record two months ago. It’s now back within 3.3% of its all-time high.

Trump boosted such hopes Thursday after saying he had “a very good phone call” with China’s leader, Xi Jinping, about trade and that “their respective teams will be meeting shortly at a location to be determined.”

China’s assessment of the call, as reported in state media, was less enthusiastic.

Still, it’s an easing of tensions after the world’s two largest economies had earlier accused each other of violating the agreement that had paused their stiff tariffs against each other, which threatened to drag the economy into a recession.

Markets took the latest signs of detente with Beijing coolly, given that nothing is assured in Trump’s on-and-off rollout of tariffs.

Among Wall Street’s winners was MongoDB, which jumped 12.8% after the database company likewise delivered a stronger profit than analysts expected.

Circle Internet Group, the U.S.-based issuer of one of the most popular cryptocurrencies, surged 168.5% in its first day of trading on the New York Stock Exchange.

The yield on the 10-year Treasury held steady at 4.38%, up from 4.37% late Wednesday after tumbling from 4.46% the day before.

Yields dropped so sharply on Wednesday as expectations built that the Federal Reserve will need to cut interest rates later this year to prop up an economy potentially weakened by tariffs.

In other dealings early Friday, U.S. benchmark crude oil lost 34 cents to $63.03 per barrel. Brent crude, the international standard, fell 28 cents to $65.06 per barrel.

The U.S. dollar rose to 143.90 Japanese yen from 143.49 yen. The euro fell to $1.1424 from $1.1448.

Source: AP

Risk Warnings and Disclaimers

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Glendon

Economic

Forex

The dollar was headed for a weekly loss on Friday, undermined by signs of fragility in the U.S. economy and little progress on trade negotiations between Washington and its partners, ahead of a critical jobs report.

The U.S. nonfarm payrolls report expected later on will draw greater scrutiny after a slew of weaker-than-expected economic data this week underscored that President Donald Trump's tariffs were taking a toll on the economy.

Analysts say the data so far has indicated that the U.S. economy faces a period of increasing price pressures and slowing growth, which could complicate Federal Reserve monetary policy, even as Trump has been critical of the institution's cautious stance.

Job growth likely slowed considerably in May as businesses struggled with headwinds from tariff uncertainty, but probably not enough to budge a cautious Federal Reserve.

Economists polled by Reuters forecast the U.S. economy created 130,000 new jobs in May versus 177,000 in April, while average earnings are expected to have increased marginally month-on-month.

"We will be watching the wages growth data today very closely. If there is no major surprise to the upside we think that a weak report could eventually boost expectations of Fed rate cuts," said Ipek Ozkardeskaya, senior market analyst at Swissquote Bank said.

"The Fed expectations are massively dependent on the inflation trajectory and the inflation trajectory seems higher these days."

Friday's U.S. jobs data would likely be the next catalyst for currencies, at a time when investors have questioned the dollar's prized safe-haven status.

The yenslipped 0.35% to 144.12 per dollar in choppy trading, while the Swiss francdipped to 0.82.

Sterlingslipped 0.18% at around $1.35 having scaled a more than three-year peak in the previous session, and was set to rise about 0.6% for the week.

Against a basket of currencies, the dollaredged up to 98.9, and was headed for a weekly loss of 0.5%.

Thomson ReutersDollar Index components against the US currency

ECB OUTLOOK, TRADE TENSIONS

The eurowas taking a breather after hitting a 1-1/2-month top on Thursday following hawkish remarks from the European Central Bank. It last bought roughly $1.1423, down just 0.18% on the day.

Traders have pushed back expectations on the timing of the next rate cut, but continue to anticipate a 25-basis point reduction by year-end. (0#EURIRPR)

Deutsche Bank's Mark Wall said he still expects 50 basis points worth of ECB rate cuts, adding "it is still too early to judge the impact of the trade war, and the path of the trade war is in any case still inherently unpredictable."

Reflecting a struggling economy, data showed that German exports and industrial output fell more than expected in April.

Most currencies had surged against the dollar late on Thursday, helped by news that Trump and Chinese President Xi Jinping spoke on a call for more than an hour, before paring some of their gains.

Investors remain worried about U.S. trade negotiations and the lack of progress in hashing out deals ahead of an early July deadline.

The highly anticipated call between Trump and Xi also provided little clarity and the spotlight on it was quickly stolen by a public fallout between Trump and Elon Musk.

Elsewhere, cryptocurrency dogecoin (DOGE=KRKN), often supported by Musk, was a touch firmer after falling to a one-month low on Thursday.

Bitcoinjumped 3.4% to $103,942, rebounding from Thursday's one-month low. Ethersimilarly rose 3.8% to $2,490.57.

"Despite escalating U.S.-China tensions, including expanded tech sanctions and higher steel tariffs, bitcoin has remained resilient," said Gracie Lin, OKX's Singapore CEO.

Source: TradingView

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Risk Warnings and Disclaimers

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Michelle

Cryptocurrency

The crypto market cap’s 2.01% slip to the $3.22 trillion mark has pushed the assets into a mixed sentiment. All the major asset prices are charted in red. Assets like Bitcoin (BTC) and Ethereum (ETH) have chosen to trade on the downside. The largest altcoin, Ethereum, has suddenly plummeted by over 5.65% and lost its recent gains.

ETH bears could likely build a negative trend line, and further downside correction brings in more losses. A bullish shift might occur only after the altcoin climbs above the $2.6K mark.

In the early hours, the bulls in command have pushed the ETH price to its daily high at the $2,640.60 range. Later, it steeply fell to the bottom level of $2,387.61 as the bears reclaimed the momentum. Ethereum is currently traded at around $2,462.74, with a market cap of $297 billion.

Notably, the daily trading volume has increased by over 66.23%, reaching $28.13 billion. As per Coinglass data, the market has witnessed a liquidation of $284.94 million worth of Ethereum.

What is Next for Ethereum?

The ETH/USDT trading pair’s Moving Average Convergence Divergence (MACD) line and signal line have crossed below the zero line. This crossover typically indicates the negative momentum in the market. It may drive the price to stay under the bearish pressure. Moreover, the Chaikin Money Flow (CMF) indicator value found at -0.14 suggests moderate selling pressure, and the money is flowing out rather than in.

ETH chart (Source: TradingView)

If ETH’s active downtrend stays, the price could fall to the nearby support at the $2,425 range. An extended correction on the downside might likely trigger the death cross to unfold. The potential bears of Ethereum push the price to steadily plunge toward $2,407 or even lower.

On the upside, assuming the asset’s current momentum shifted gear, entering the bullish zone, ETH could test the key resistance at the level of $2,480. A potent upside correction might invite the golden cross to support the price movement, sending Ethereum to the $2.5K threshold.

In addition, ETH’s Bull Bear Power (BBP) value staying at -164.43 signals a strong bearish momentum in the market, pushing prices below. The downturn may continue until a reversal emerges. The asset’s daily relative strength index (RSI) of 36.02 points to the approaching oversold zone, with the potential of continued weakness.

Source: CryptoSlate

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Glendon

Economic

Forex

The US Dollar is vulnerable as leading indicators point to a near-expectation reading in this month’s NFP report, with headline job growth potentially coming in somewhere in the 115-150K range.

NFP Key Points

NFP report expectations: +127K jobs, +0.3% m/m earnings, unemployment at 4.2%.
Leading indicators point to near-expectation reading in this month’s NFP report, with headline job growth potentially coming in somewhere in the 115-150K range.
Even if we do see a US dollar bounce on a stronger-than-anticipated jobs report, bears may look to sell any rallies to join the ongoing downtrend at a more favorable price.

When is the May NFP Report?

The May NFP report will be released on Friday, June 6, at 8:30 ET.

NFP Report Expectations

Traders and economists expect the NFP report to show that the US created 127K net new jobs, with average hourly earnings rising 0.3% m/m (3.7% y/y) and the U3 unemployment rate holding steady at 4.2%.

NFP Overview

After years of consistent strength, there are finally early signs of cracks in the US labor market.

In addition the classic U3 unemployment rate nearing its highest level in 2.5 years, we’ve also seen a deterioration in the ADP employment report, an uptick in initial unemployment claims, and persistently high continuing claims figures, signaling that while layoffs haven’t necessarily surged, it’s increasingly difficult for unemployed workers to secure a new job.

Employment is classically a lagging indicator for the underlying performance of the economy, but if that lagging indicator starts to deteriorate this summer, it could cement a slowdown into the second half of the year.

When it comes to this month’s jobs report, expectations are for +127K jobs, with the unemployment rate to hold steady at 4.2%. One key area to watch will be the average hourly earnings measure, which is expected to come in unchanged from last month at 0.3% m/m:

Source: StoneX

As the lower left box below suggests, traders now expect just two interest rate cuts from the Federal Reserve this year, though the central bank is likely to remain on hold through the summer barring a huge surprise.

NFP Forecast

As regular readers know, we focus on four historically reliable leading indicators to help handicap each month’s NFP report:

The ISM Services PMI Employment component improved modestly to 50.7 from 49.0 last month.
The ISM Manufacturing PMI Employment component held steady at 46.8 from last month’s 46.5 reading.
The ADP Employment report showed just 37K net new jobs, down from last month’s 60K print.
Finally, the 4-week moving average of initial unemployment claims ticked up to 235K, up from last months 226K reading.

Weighing the data and our internal models, the leading indicators point to a near-expectations reading in this month’s NFP report, with headline job growth potentially coming in somewhere in the 115-150K range, albeit with a big band of uncertainty given the current global backdrop.

Regardless, the month-to-month fluctuations in this report are notoriously difficult to predict, so we wouldn’t put too much stock into any forecasts (including ours). As always, the other aspects of the release, prominently including the closely-watched average hourly earnings figure which came in at 0.2% m/m in the most recent NFP report.

Potential NFP Market Reaction

As we outline below, the US Dollar Index has seen its counter-trend bounce peter out, and the world’s reserve currency could be poised to extend its downtrend to 3+ year lows if the labor market deteriorates further.

US Dollar Technical Analysis – DXY Daily Chart

Source: TradingView, StoneX

The US Dollar Index (DXY) bounced through the first half of May before rolling back above to approach 3+ year lows near 98.00 as we go to press. The counter-trend bounce alleviated the oversold condition on the 14-day RSI, potentially setting the stage for another leg lower, especially if the jobs report comes in weaker than anticipated.

While the jobs market is likely to be increasingly important in driving the Federal Reserve’s decisions as we move through the year, tariff headlines and any potential trade deals (especially with China) may be bigger market movers in the near term.

Technically speaking, the April low around 98.00 is the most important support level to watch, whereas the nearest clear level of topside resistance comes from the descending bearish trend line closer to 100.00. Even if we do see a bounce on a stronger-than-anticipated jobs report, bears may look to sell any rallies to join the ongoing downtrend at a more favorable price.