The US dollar witnessed a marginal decline during early trading on Friday, but then moved significantly higher, putting the greenback on track for marginal gains this week.

Key factors affecting the dollar's movements

The US dollar opened early trading in the Asian session with a marginal decline, but then moved to narrow its gains and settled near the previous session's closing level, before witnessing a strong jump following the release of very strong US labor market data.

Data released a short while ago showed an increase in non-farm payroll employment in the US by 253,000 jobs in April, exceeding market expectations which indicated that the sector would add only 181,000 jobs, and it is also higher than last month's reading which recorded 165,000 jobs after being revised down from 236,000 jobs.

At the same time, the data also showed the unemployment rate in the US fell to 3.4% during the same period, better than expectations which indicated it would rise to 3.6%, and better than March's reading of 3.5%. This came at a time when wages grew by 0.5%, exceeding market expectations of only 0.3%, which were recorded last month.

These positive data led to a strong rise in the dollar, reflecting the strength and tightness of the US labor market, despite the Federal Reserve continuing its monetary tightening cycle, the latest of which was this week, with expectations indicating that it would significantly weaken the US labor market.

On the other hand, these very positive labor market data support expectations that the Federal Reserve may raise interest rates again at its next meeting in June in order to control the core inflation that still shows clear resistance to slowing down at the desired pace.

At the same time, data released earlier this week for US manufacturing sector purchasing managers’ index prices also came very positive and strong, recording strong growth and exiting the contraction zone, with the index registering 53.2 points, after it was expected to remain in the contraction zone below 50 points and register only 49.4 points, reflecting continued inflationary pressures, which in turn supports the dollar's rise.

The dollar's rise today came after losses suffered following the US Federal Reserve's decision this week, after raising the interest rate by another 25 basis points to 5.25%, and Federal Reserve Chairman Jerome Powell's statement that although the Federal Open Market Committee did not discuss the option of stopping rate hikes at this meeting, they may begin discussing it at the next meeting in June.

This jump achieved by the dollar today after the release of labor market data has put the dollar on track to achieve weekly gains, about 0.23% so far, especially after receiving strong support from the sharp rise in US Treasury bond yields today, with 10-year Treasury yields rising by about 3.27% to 3.462%.

Meanwhile, investors' concerns about the US banking sector have somewhat eased, as the SPDR S&P Regional Banking ETF rose by 4.49%, reaching 73.70 during market trading.

This rise in the regional banks index reflects improving investor sentiment after authorities suspended trading on two banks to avoid a crisis and confirmed deposit guarantees for investors, which paved the way for the dollar to benefit from today's positive data.

Dollar now

In terms of trading, the Dollar Index – which measures the performance of the US currency against a basket of 6 other major currencies – rose about 0.20% today to 101.66 points.

Regarding its trading against other major currencies, the euro fell against the dollar by 0.19% to 1.0980 dollars, while the British pound rose against the dollar by about 0.14% to 1.2590 dollars.

At the same time, and against safe havens, the dollar rose against the Japanese yen by about 0.35% to 134.72 yen, while the dollar rose against the Swiss franc by 0.90%, recording 0.8938 francs.

Regarding its performance against commodity currencies, the Australian dollar rose against its US counterpart by 0.35% to 0.6716 US dollars, while the New Zealand dollar fell marginally against the US dollar by 0.06% to 0.6276 US dollars, while the US dollar declined against the Canadian dollar by about 0.55% to 1.3464 Canadian dollars.