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Dollar rises as U.S. jobs growth rekindles Fed rate rise wagers

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(Bloomberg) — The dollar rose to a two-week high against the yen after payroll data showed jobs growth in the U.S. exceeded forecasts, supporting the case for Federal Reserve interest rate increases this year.

The dollar gained 0.3 percent to 114.01 yen as of 8:43 a.m. New York time, reaching the highest level since Feb. 15. The greenback added 0.3 percent to $1.0922 per euro.

The U.S. currency gained after employers added more workers in February than projected. The 242,000 gain followed a 172,000 rise in January that was larger than previously estimated, a Labor Department report showed Friday. The jobless rate held at 4.9 percent, an eight-year low.

“I would read it as positive,” said Georgette Boele, a currency strategist at ABN Amro Bank NV in Amsterdam. “We expect upside versus majors also because of more monetary policy easing in the euro zone and Japan.”

Traders are pricing in a 55 percent likelihood of an increase by September, up from 50 percent before the report was released. That’s based on the assumption that the effective fed funds rate will trade at the middle of the new FOMC target range after the next increase.

Dollar Path

The dollar index dropped 1.8 percent in February on concern that a global economic slowdown will drag down the world’s biggest economy. Last month’s stumble, which was the currency’s worst since April 2015, follows a two-year rally on speculation that the Fed would boost borrowing costs while its biggest peers carried out unprecedented stimulus.

In December, policy makers lifted rates by a quarter-point from near zero and forecast four more rate increases this year. Officials have projected that risks to growth and inflation would prove transitory. The central bank’s favored inflation measure hasn’t reached officials’ 2 percent target since 2012.

Average hourly earnings dropped by 0.1 percent from the prior month, the first decline since December 2014. Worker pay increased 2.2 percent over the 12 months ended in February, less than the 2.5 percent forecast in the Bloomberg survey. Wage growth has been hovering just above 2 percent year-over-year on average since the current expansion began in mid-2009.

“The report is strong, but the market will take notice of soft wage inflation,” said Bipan Rai, director of foreign- exchange strategy in Toronto at Canadian Imperial Bank of Commerce’s CIBC World Markets unit. “This throws cold water on hopes that we were seeing some signs of nascent wage pressures and should see the U.S. Dollar come under pressure against emerging-market and commodity” currencies, he said.

See also:

Treasury yield forecasts slide as data disappoint economists

Yellen’s challenge: Nodding to markets without ditching forecast

Gross says tough time for bonds if Fed relies on jobs

Fed’s next moves should not be according to plan: Editorial


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