The Federal Reserve’s Labor Market Conditions Index (LMCI) slid in May, following a poor performance from the labor market that too registered a decline in the same month, adding too few jobs into the US economy, slashing hopes of an upbeat. This is further likely to impact the Fed’s decision of a rate hike in June this year.

The LMCI fell 4.8 points in May the largest monthly decline since the 2009 recession. In addition, the last two months’ readings were marked lower to -3.4 in April from an initial -0.9 and -3.0 in March compared to an initial -2.1. This marked the fifth successive decline and maintained the very disappointing trend seen for 2016 as a whole.

Further, the LMCI raised fresh doubts whether the Fed will be in a position to raise interest rates in the short term even with an element of double counting given that the very poor Friday employment data is included in the LMCI, Barclays reported.

Last week’s headline employment data was substantially weaker than expected with the estimated increase in non-farm payrolls of only 38,000 for May and the weakness in the payrolls data will have had a significant impact in dragging the LMCI down. The LMCI is a broad composite index of 19 labor-market indicators and is watched closely by the Federal Reserve, with Chair Yellen instrumental in setting up the index.

The dollar edged slightly weaker immediately after the data was released with EUR/USD back above 1.1350 while Treasury markets remained weaker with 10-year futures declining by over 25 ticks with the yield at 1.73 percent. US equity markets were higher in early dealings.

"We maintain our baseline outlook for further improvement in labor markets and a modest growth environment, but will be watching other labor market indicators vigilantly for any signs of deterioration," Barclays said in a research comment.