Dollar gains on strong jobs data, mid-year rate hike view

The US dollar advanced against major currencies on Friday after data showed solid US jobs growth and a strong rebound in wages in January, bolstering views that the Federal Reserve will hike interest rates by mid-year. The US Labour Department said nonfarm payrolls increased by 257,000 last month, beating economists' expectations for a rise of 234,000 jobs according to a Reuters poll. Data for November and December was revised to show a whopping 147,000 more jobs created than previously reported.
In addition, wages increased 12 cents last month after falling 5 cents in December. That took the year-on-year gain to 2.2 percent, the largest since August, raising expectations the Fed may have less leeway in citing low inflation as a reason to hold off on hiking rates. The dollar recovered Thursday's losses against the euro. The euro fell 1.4 percent against the greenback, its biggest daily loss against the dollar in two weeks. The dollar also hit its highest level against the safe-haven Japanese yen in 3-1/2 weeks, at 119.230 yen.
"It clearly cements that the Fed will start its first rate hike in June," said Sebastien Galy, senior foreign exchange analyst at Societe Generale in New York, said on the US data. Traders are watching the Fed closely for clues about when the US central bank will hike benchmark borrowing rates from rock-bottom levels. A rate hike would probably boost the dollar by driving investment flows into the United States.
The US jobs data led Treasury yields higher, widening the gap between US and Japanese government bonds and driving preference for US investments, which boosted the dollar against the yen. "Dollar/yen happens to be one of the more rate-sensitive currency pairs out there, it's also relatively under-owned, and hence you have the decent bid," said Alan Ruskin, global head of currency strategy at Deutsche Bank in New York.
The euro was last down 1.38 percent against the dollar at $1.13220. The dollar was last up 1.13 percent against the yen at 118.845 yen. The dollar was last up 0.45 percent against the franc at 0.92540 franc. On the week, however, the euro rose slightly, its second straight weekly gain, partly in response to speculation that the Swiss National Bank was buying euros. The dollar index, which measures the greenback against a basket of six major currencies, was last up 1.15 percent at 94.640.