NEW YORK: 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 US 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. 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.
With nonfarm payrolls out of the way, investors are now focused on the US 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, US economist, at Jefferies, wrote that he expects CPI “will continue to show uncomfortably high core inflation pressure.
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