Bad for the dollar! Two major investment banks predict non-farm weakness in May, which may increase the incentive for the Federal Reserve to cut interest rates

foreign exchange trading platform - Investors will be watching the May non-farm payrolls report to get a clearer picture of whether the Federal Reserve will loosen its policy to fight inflation. The U.S. non-farm payrolls report for May will be released at 20:30 Beijing time on Friday, June 7. Economists surveyed by Dow Jones expect the Bureau of Labor Statistics to report new U.S. non-farm payrolls in May, up slightly from April's 175,000.

In addition, the market will closely monitor wage data, with the average monthly rate of hourly wages in the United States expected to be 0.3% in May, up slightly from the previous month, bringing the average hourly wage annual rate in May to 3.9%, the same as the previous value, indicating that the Federal Reserve still has more work to do.

Other employment indicators this week showed a slowdown in private employment growth, with the ADP report growing only 152,000 and initial jobless claims rising slightly.

Andrew Hollenhorst, economist at Citi, said in a note: "The May jobs report is particularly important right now. Weaker data - fewer than 175,000 jobs and an unemployment rate of 4 per cent or higher - would be the last evidence that the slowdown will persist. On the other hand, an unexpected strengthening would reinforce the view that there is no need to rush to cut rates and push Treasury yields higher."

Citi expects non-farm payrolls to increase by just 140,000 (175,000) in May, with the unemployment rate hitting 4% for the first time since January 2022.

If that's the case, that could give the Federal Reserve the incentive to cut interest rates sooner than expected.

The market currently believes that the Federal Reserve is for the first timeinterest rate cutIt will take place in September and there will be another rate cut in December. Citi's view on the outlook for US jobs is lower than the consensus view in the market, and its view on the rate cut is also the most deviated from the consensus view on Wall Street so far. Citi expects the Federal Reserve to start cutting interest rates in July and continue to cut interest rates four times before the end of the year.

Goldman Sachs also expects non-farm payrolls to add just 160,000 in May, lower than market expectations, as it believes seasonal adjustments have dampened job growth. However, the firm also expects an extra payroll week this month to offset some seasonal distortions.

On wages, Goldman Sachs and Citi are broadly in agreement, maintaining wage increases at levels that Fed officials say are inconsistent with their 2 per cent inflation target.

Based on the above news, Citi and Goldman Sachs, two well-known investment banks, both predict that the US will be non-agricultural or softer in May, which may increase the incentive for the Federal Reserve to cut interest rates, thus favoring the dollar and bearish gold.