Robust labor market made markets reconsider a possible hike by the Fed
The US Bureau of Labor Statistics revealed that employment in the US increased by 339k, surpassing the consensusof 190k. However, the Unemployment rate rose to 3.7% compared to the expected 3.5%. Wage inflation, measured by Average Hourly Earnings, stood at 4.3% YoY, slightly lower than the anticipated 4.4%.
Despite labor demand beginning to exhibit signs of deceleration, the robust employment growth and ongoing inflationary pressures are exerting force on the Fed to contemplate interest rate hikes. This has resulted in an upswing in US bond yields, reflecting heightened market expectations for a 25 basis points hike in the upcoming June meeting. In that sense, the US bond yields are experiencing increases across the curve. The 10-year bond yield increased by 2.33%, reaching 3.68%.
However, as per the CME FedWatch tool, markets are still discounting higher odds of no hike, although the case for a 25 bps gain has strengthened. Before the meeting, the Federal Open Market Committee will know the May inflation reading, which will finally model the expectations for their next interest rate decision.The GBP/USD holds a slightly bearish outlook for the short term, as per the daily chart.