The U.S. dollar rose sharply after the May employment report proved significantly better than expected, becoming one of the main triggers last Friday.

The Bureau of Labor Statistics reported that the number of non-farm jobs in the U.S. increased by 172,000, with a consensus forecast of 85,000 — nearly double expectations. The unemployment rate remained stable at 4.3%, and the labor force participation rate was unchanged at 61.8%.

The structure of the report is as interesting as the final figure. The main driver was the leisure and hospitality sector, which added 70,000 new jobs, the highest in over three years. Healthcare, social assistance, and local government also contributed significantly. Notably, employment growth was recorded in both non-residential construction and the manufacturing sector. Experts link this to an investment boom surrounding AI infrastructure: the construction of data centers and the production of related equipment is creating jobs far beyond the narrow definition of the technology sector.

For the Federal Reserve, this report is an extremely inconvenient gift. The central bank is already operating amid inflation at 3.8% based on the PCE index — the highest since 2023. Now, this is compounded by a labor market that clearly does not need to be stimulated. Traders have fully priced in a 25-basis-point hike by the end of the year, with the probability of an October move assessed at around 60%.

It is worth noting that a strong labor market is good news for the real economy and bad news for financial markets right now. The more resilient employment is, the less reason the Fed has to ease policy, and the longer rates will remain high.

For the dollar, this is supportive. That is why the report, which would otherwise have been met with enthusiasm, has become a "cold shower" in the current context. All eyes are now on the Fed meeting on June 16-17 — the first under Kevin Warsh — where the market awaits clear signals about where the central bank will lead policy next.