Dollar Strengthens as Robust Jobs Growth Backs Fed's Rate Plans

How Big a Worry Is a Strong Dollar for Fed?
  • U.S. currency gains restrained as wage growth trails forecast
  • Greenback also supported as China-linked market turmoil ebbs

The dollar rose after a report showed U.S. jobs growth exceeded forecasts, backing the case for the Federal Reserve to continue raising interest rates this year.

A greenback index touched the highest in more than a decade before paring gains after Labor Department data showed lower-than-forecast wage patterns tempered the employment increase. The U.S. currency also strengthened as China’s central bank set a higher yuan fix and state-controlled funds were said to buy equities, damping turmoil that roiled global markets this week.

The dollar’s climb was moderated by “a general risk-off tone that wasn’t really overridden by a strong jobs number,” said Brian Daingerfield, a currency strategist at Royal Bank of Scotland Group Plc’s RBS Securities unit in Stamford, Connecticut. Market participants are “taking some risk off the table ahead of the weekend,” he said.

The U.S. currency has been restrained this year on concern that China’s slowdown will hamper global growth. Tolerance for a weaker currency in the world’s second-biggest economy is viewed as evidence policy makers are struggling to revive growth. The turmoil has largely benefited the yen, which advanced almost 3 percent against the dollar this week as investors sought the safest assets.

The greenback rose 0.1 percent to $1.0922 per euro and slipped 0.4 percent to 117.26 yen as of 5 p.m. in New York. The Bloomberg Dollar Spot Index, which tracks the currency versus 10 peers, added 0.3 percent to 1,240.22. The measure has gained for nine of the past 10 days.

Jobs Update

The 292,000 jobs gain exceeded the highest forecast in a Bloomberg survey and followed a 252,000 increase in November that was stronger than previously estimated, a Labor Department report showed. The jobless rate held at 5 percent.

“While the number was positive, I don’t know that it was strong enough to offset the current level of uncertainty regarding China or the health of the global economy,” said Omer Esiner, chief market analyst at currency brokerage Commonwealth Foreign Exchange Inc. in Washington.“That’s partially why we’re seeing the dollar show a somewhat muted reaction to this data.”

While employers continue to aggressively add to headcounts, worker pay has yet to show a sustainable pickup. Average hourly earnings were unchanged from the prior month. They increased 2.5 percent over the 12 months ended in December. The median forecast called for a 2.7 percent year-over-year gain.

Minutes from the Fed’s policy meeting in December showed officials are concerned China “could find it difficult to navigate the cyclical and structural changes under way in its economy.”

The Fed lifted its target rate by 0.25 percentage point in December after holding it near zero for seven years, and policy makers forecast four more increases this year. Interest-rate derivatives traders expect only about two increases in 2016 as plunging oil prices and elevated global market volatility challenge U.S. inflation and economic growth.

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