The US dollar advanced from two-week lows on Friday after data showed the world’s largest economy created far more jobs than expected, raising the chances of a larger Federal Reserve interest rate increase at the March policy meeting.
The dollar index, a gauge of its value against six major currencies, rose 0.1 per cent to 95.446, after falling to a two-week low of 95.136 earlier amid a resurgent euro.
But the dollar was still down 1.8 per cent on the week, on pace for its largest weekly percentage decline since November 2020.
Data showed US nonfarm payrolls grew 467,000 jobs last month. Data for December was revised higher to show 510,000 jobs created instead of the previously reported 199,000.
Economists polled by Reuters had forecast 150,000 jobs added in January. Estimates ranged from a decrease of 400,000 to a gain of 385,000 jobs.
Market participants were prepared for a weaker-than-forecast reading given the decline in the ADP US private payrolls report released earlier this week. That report showed a decline due to the impact of the Omicron coronavirus variant.
Average hourly earnings, a measure of wage inflation and a closely-watched metric, also rose 0.7 per cent last month, and 5.7 per cent on a year-on-year basis.
“It is the 0.7 per cent month-on-month gain in wages that is most hawkish,” wrote Daragh Maher, head of FX strategy, at HSBC. “This helps counter dollar-bearish real income squeeze concerns and the stagflation theme, and will likely energise FOMC (Federal Open Market Committee) hawks.
The dollar also tracked the surge in US Treasury yields.
US two-year and five-year yields, both of which reflect interest rate expectations, rose to 1.2970 per cent, the highest since late February 2020, and 1.79 per cent, its best level since July 2019, respectively.
In the afternoon session, US rate futures implied more than five rate hikes this year, or about 134.4 basis points in policy tightening.
The probability of a 50 basis-point increase next month rose to nearly 40 per cent, from just 18 per cent before the data release.
The euro was still up on the day, rising 0.1 per cent at US$1.1455 (RM4.79). It was up 1.7 per cent on the week, on track for its best weekly performance since late March 2020, benefiting from a hawkish turn by the European Central Bank (ECB) on Thursday.
The euro stalled around the resistance level of US$1.1480 because of dollar gains following the US employment report.
HSBC’s Maher said the euro/dollar pair is likely to resume its upward momentum given that the market seems more fixated on the ECB’s hawkishness, which surprised markets, than the Fed.
Sterling also has been among the big currency movers this week, after the Bank of England raised rates to 0.5 per cent on Thursday — marking the first back-to-back increases by the central bank since 2004.
The pound though fell 0.5 per cent to US$1.3536. On the week, it was up 1 per cent this week.