Dollar firms as US jobs report backs Fed hike in May

By Gertrude Chavez-Dreyfuss

NEW YORK (Reuters) – The dollar strengthened on Friday after data showed an increase in jobs in the world’s largest economy last month, suggesting that the Federal Reserve may have to raise interest rates next month.

Prior to the jobs report, the rate futures market had been betting that the Fed would pause at the May policy meeting. The market has now priced in a 70% chance the Fed will raise interest rates by 25 basis points (bps), though multiple rate cuts have also been factored in by the end of the year.

    Friday’s data showed U.S. nonfarm payrolls increased 236,000 in March, in line with forecasts of 239,000. Data for February was revised higher to show 326,000 jobs were added instead of 311,000 as previously reported.

The unemployment rate fell to 3.5% from 3.6% in February. Average hourly earnings, which reflect wage inflation, rose 0.3% in March after gaining 0.2% in February.

“Federal Reserve officials are likely to continue delivering their higher-for-longer message in the run-up to the May policy meeting, supporting expectations for a final rate hike and putting a floor under the dollar,” said Karl Schamotta, chief market strategist at Corpay in Toronto.

“That said, recent data would suggest that the economic risk backdrop is turning more negative – if inflation and retail sales numbers disappoint in coming weeks, all bets are off,” he added.

Liquidity has thinned in the hours following the release of the jobs number ahead of the Easter weekend. Some European markets are also closed on Monday.

In afternoon trading, the dollar index rose 0.1% to 102.03. Against the yen, the dollar was up 0.3% at 132.10 yen while the euro was 0.1% weaker at $1.0910.

The greenback gained 0.2% versus the Swiss franc to 0.9049 francs. Sterling likewise fell against the dollar, down 0.2% at $1.2412.

Analysts also said that while the jobs report showed strong gains, there are sectors that have seen moderate declines specifically the manufacturing and construction industries.

“(This) should be an encouraging sign to the Fed some effects of monetary policy are starting to take hold,” said Charlie Ripley, senior investment strategist, at Allianz Investment Management in Minneapolis, in emailed comments.

With nonfarm payrolls out of the way, investors are now focused on the U.S. consumer price index (CPI) for the month of March. Economists polled by Reuters expect core CPI of 0.4% last month and 5.6% on a year-on-year basis.

Tom Simons, U.S. economist, at Jefferies, wrote that he expects CPI “will continue to show uncomfortably high core inflation pressure.”

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Currency bid prices at 12:20PM (1620 GMT)

Description RIC Last U.S. Close Pct Change YTD Pct High Bid Low Bid

Previous Change

Session

Dollar index 102.0200 101.9100 +0.14% -1.420% +102.3000 +101.8700

Euro/Dollar $1.0910 $1.0921 -0.11% +1.82% +$1.0922 +$1.0876

Dollar/Yen 132.1000 131.7700 +0.28% +0.79% +132.3650 +131.5200

Euro/Yen 144.17 143.88 +0.20% +2.76% +144.1900 +143.6000

Dollar/Swiss 0.9049 0.9045 +0.10% -2.08% +0.9080 +0.9035

Sterling/Dollar $1.2412 $1.2438 -0.18% +2.67% +$1.2455 +$1.2390

Dollar/Canadian 1.3501 1.3493 +0.18% -0.24% +1.3530 +1.3487

Aussie/Dollar $0.6651 $0.6673 -0.12% -2.22% +$0.6691 +$0.6641

Euro/Swiss 0.9875 0.9879 -0.04% -0.20% +0.9890 +0.9862

Euro/Sterling 0.8788 0.8777 +0.13% -0.63% +0.8790 +0.8766

NZ $0.6232 $0.6245 +0.04% -1.61% +$0.6270 +$0.6210

Dollar/Dollar

Dollar/Norway 10.4820 10.4410 +0.37% +6.79% +10.5140 +10.4540

Euro/Norway 11.4485 11.3992 +0.43% +9.10% +11.4640 +11.4025

Dollar/Sweden 10.4578 10.4224 +0.16% +0.48% +10.4762 +10.4219

Euro/Sweden 11.4067 11.3883 +0.16% +2.31% +11.4216 +11.3787

(Reporting by Gertrude Chavez-Dreyfuss; Additional reporting by Saqib Iqbal Ahmed; Editing by Mark Porter, Kirsten Donovan)