NEW YORK: The dollar gained after a solid jobs report for March on Friday added to expectations that the Federal Reserve will hike rates again in May, while the Japanese yen weakened as Japan’s new central bank governor Kazuo Ueda indicated that he was in no hurry to dial back its massive stimulus.
US employers maintained a strong pace of hiring in March, adding 236,000 jobs, pushing the unemployment rate back down to 3.5% and signaling labor market resilience that will keep the Federal Reserve on track to raise interest rates one more time next month.
“In my view the pendulum of market sentiment is going to swing back in favor of a Fed rate hike early next month,” said Marc Chandler, chief market strategist at Bannockburn Global Forex in New York, noting that momentum indicators for dollar currency pairs are “overstretched,” and likely to favor near-term dollar strength.
The dollar index was last up 0.67% against a basket of currencies at 102.68, the highest since April 3. The euro fell 0.51% to $1.0841, the lowest since April 3.
Consumer price data on Wednesday is this week’s major US economic focus and is expected to show that headline inflation rose by 0.3% in March, while core inflation increased by 0.4%.
Traders are also closely watching data on bank lending after the collapse of Silicon Valley Bank in mid-March sparked fears about bank contagion and led the government and Fed to intervene to shore up liquidity in the sector.
“We know from the Fed’s point of view price pressures remain elevated and the labor market remains robust. That hasn’t really changed, what’s changed is bank behavior,” said Chandler.
The latest Fed data shows that commercial and industrial loans at commercial banks dropped to $2.756 trillion in the week ending March 29, from $2.824 trillion in the week ending March 15.
Fed funds futures traders are currently pricing in a 70% probability that the Fed will hike rates by an additional 25 basis points at its May 2-3 meeting. The greenback was last up 1.00% at 133.45 yen, the highest since April 3.