Dollar Rallies Most Since 2011 as Job Gains Fuel Fed Speculation

The dollar climbed the most in more than three years after a report showing strength in the U.S. labor market bolstered the case for the Federal Reserve to raise interest rates as global peers embrace monetary stimulus.

The greenback rose against most major counterparts as U.S. employers added more jobs than forecast and the unemployment rate fell to the lowest since 2008. Traders boosted wagers on a rate rise by September. While the Fed has said it will be “patient” on increasing borrowing costs, Chair Janet Yellen said last week timing will depend on economic data.

“We could see the dollar continue to trend upward, especially if U.S. data continues to be strong,” said Kate Warne, a St. Louis-based investment strategist at Edward D. Jones & Co., which manages $870 billion. “Companies are feeling more comfortable adding to their workforce.”

The Bloomberg Dollar Spot Index, which tracks the U.S. currency against 10 major peers, gained as much as 1.2 percent - - the biggest jump since November 2011 -- and closed at 1,198.93, the highest in more than 10 years. The gains capped a third weekly increase.

The U.S. currency reached the strongest level against the euro since September 2003, appreciating as much as 1.7 percent to $1.0840 before closing at $1.0844 at 5 p.m. New York time. The dollar rose 0.6 percent to 120.83 yen and touched 121.28 yen, the highest this year.

Rate Speculation

The odds the Fed will raise borrowing costs by September rose to 60 percent, from 49 percent Thursday, trading in futures contracts showed.

“It’s definitely a strong series” in terms of job creation, said Robert Tipp, chief investment strategist for Prudential Financial Inc.’s fixed-income division in Newark, New Jersey. The division oversees $534 billion in bonds. “Apparently there’s still enough room to go on the positioning side to very easily perpetuate the momentum in the strong dollar trade.”

Hedge funds and other large speculators pared bets on the dollar versus eight of its major counterparts for a fourth consecutive week in the period through March 3. The difference between wagers on dollar gains versus those on losses slipped to 403,062. So-called long positions were at a record 448,675 in the week ending Jan. 13.

June Increase

U.S. employers added 295,000 workers in February, and the unemployment rate fell to 5.5 percent, Labor Department figures showed. Economists surveyed by Bloomberg projected an increase of 235,000. The jobless rate was predicted to drop to 5.6 percent from January’s 5.7 percent.

“It knocks expectations out the park, it’s a very good number,” Douglas Borthwick, the head of foreign exchange at New York brokerage Chapdelaine & Co., said by phone. “This will continue the trend of the dollar strengthening. It looks increasingly likely that the Fed will raise rates as other central banks are cutting rates.”

Most Fed officials expect to increase rates this year, according to projections released in December. Fed Bank of Richmond President Jeffrey Lacker said Friday that June is the “leading candidate” for the first rate increase. The payrolls report indicates “a very healthy labor market,” he said in an interview on Sirius XM radio.

Fed policy makers, who meet next on March 17-18, have maintained the benchmark rate target in a range of zero to 0.25 percent since 2008 to support the economy. They last increased the rate in 2006.

The European Central Bank, which has cut rates to record lows, said Thursday it would begin buying bonds next week to avert deflation and spur economic growth. The Bank of Japan is making unprecedented bond purchases, and central banks from Sweden to Turkey to China have lowered borrowing costs.

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