Dollar rises as US jobs data seen keeping Fed on track to increase interest rates

The dollar gained on Friday after a report showed the US economy created far more jobs than expected in June and previous months, keeping the Federal Reserve on track to raise interest rates at least one more time this year.

Following the report, the dollar rose to two-month highs against the yen, in its largest weekly percentage gain since late April. The greenback also climbed to a more than one-week peak against sterling.

Friday’s data showed US non-farm payrolls rose 222,000 last month, beating economists’ expectations of a 179,000 gain. Data for April and May was revised to show 47,000 more jobs created than previously reported.

“The above-consensus payroll figure will augment the Fed’s decision to begin balance sheet reduction sooner than later,” said Charlie Ripley, investment strategist at Allianz Investment Management in Minneapolis.

“On balance, the labour market continues to be solid and despite the softer inflation data as of late, the solid employment data should keep the Fed on course for policy normalisation,” he said.

While the employment headline number was strong, inflation pressure remained tame. Average hourly earnings, which currency traders monitor closely, increased 0.2 per cent in June, short of the 0.3 per cent expected.

Marvin Loh, senior global markets strategist at BNY Mellon in Boston, pointed out that hourly earnings’ 2.5 per cent gain from a year earlier were “disappointing,” with growth slower than at the start of the year and mostly stagnant over the past several months.

But Allianz’s Ripley said tighter labour markets with the economy headed toward full employment should drive further wage increases.

The dollar was last at 113.95 yen, up 0.7 per cent, after earlier reaching a two-month high of 114.17 yen.

The yen also slid earlier on Friday after the Bank of Japan said it would buy an unlimited amount of bonds, as it sought to put a lid on domestic rates pushed higher by the broad sell-off in developed market bonds.

The euro was last at US$1.1403, down 0.2 per cent. That pushed the dollar index up 0.2 per cent to 96.0132

Sterling fell to a more than one-week low of US$1.2871 and was last down 0.7 per cent at US$1.2883.

After release of the jobs data, US short-term interest rate futures showed continued bets the Fed would raise interest rates in December.