The dollar erased gains made in the first half of the weekwhile risk assets posted moderate gains after release of ADP report for May,which was rather pessimistic about US labor market gains. According to the ADPreport, the economy added just 128K jobs, less than half of the 300K forecast.The dollar index left the range of 102.50-102 after release of the data and istrading on Friday without much change in the range of 101.50-102 points:

Looking under the hood, one interesting trend was clearlyvisible: small businesses were cutting jobs, while medium and large businesses,on the contrary, were increasing hiring:

Small businesses are predominantly represented in the service sector, in addition, they are less resistant to the challenges of inflation, which are currently spelling danger for the US economy. The headline inflation rate in May was 8.3%, slightly below the cycle peak of 8.5% in April. A possible decline in consumer demand for services will likely be reflected today in the index of activity in the service sector from ISM, if this happens, it will be tough for the dollar to go on the offensive again and we may see a test of 101.50 on the dollar index. Markets are likely to revise downward the pace of tightening of the Fed's policy against this background.

As for today's NFP report, job growth is expected to be 325K, up from 428K in April. Wages are expected at 0.4% m/m, weak job growth combined with solid wage gains (especially above the forecast) will likely mean that labor demand remains strong and labor supply low, which naturally translates into low levels of hiring in the economy. This is also indicated by the high ratio of the number of open vacancies to the unemployed in the US - almost 2, i.e., two vacancies per unemployed person. Also, investors will likely pay attention to the labor force participation rate, if it is below 62.2%, the market will most likely interpret this as a sign that persisting shortage in the labor market will remain in place, which in the coming months may translate in higher wage inflation, and hence consumer inflation.