Dollar Climbs as U.S. Job Gains Spur Fed Liftoff Speculation

  • Greenback gauge rebounds after dropping 1.4 percent Thursday
  • Draghi, speaking in New York, says ECB not limited on stimulus

The dollar rose, rebounding from Thursday’s selloff, after a U.S. employment report bolstered speculation that the Federal Reserve will raise interest rates this month.

The greenback advanced after a report showed U.S. payrolls increased more than forecast. It extended gains after European Central Bank President Mario Draghi said the ECB can deploy more stimulus, if necessary. A gauge of the U.S. currency has risen 8 percent this year as the Fed signaled it was approaching liftoff, in contrast with easing by European policy makers other global central banks.

"The dollar is trading stronger in reaction to the payrolls data as it gives more justification to a Fed December rate hike," said Eimear Daly, a currency strategist at Standard Chartered Plc in London. "The dollar reaction is likely muted, however, as at this stage a December Fed move is almost a foregone conclusion."

The Bloomberg Dollar Spot Index rose 0.4 percent at 5 p.m. in New York. The index tumbled 1.4 percent Thursday. The greenback added 0.5 percent to $1.0881 per euro and advanced 0.4 percent to 123.11 yen.

Jobs Watch

The dollar’s reaction to the jobs report was limited as investors nursed their wounds after an unexpected ECB outcome on Thursday caused the biggest decline in the U.S. currency versus the euro in six years.

"The November payrolls data was very solid, but the foreign-exchange market looks gun shy after an epic Thursday," Alan Ruskin, global co-head of foreign-exchange research at Deutsche Bank AG in New York, said in an email. "The data at least gives the dollar a fighting chance of more upside this year, but the price action is disappointing, most obviously on euro-dollar."

The 211,000 increase in payrolls followed a 298,000 gain in October that was bigger than previously estimated, a Labor Department report showed. The median forecast called for a 200,000 advance. The jobless rate held at 5 percent.

"The report supports the view that the Fed will be hiking rates in December, which will continue to lift the dollar into year-end," said Sireen Harajli, a currency strategist at Mizuho Bank Ltd. in New York.

Fed Chair Janet Yellen delivered a cautiously upbeat outlook for the U.S. economy this week, signaling the conditions necessary for an interest-rate increase have been met and that she hopes to tighten monetary policy slowly after liftoff.

Traders saw a 76 percent probability that the Fed would raise its benchmark rate at its next meeting, according to futures data compiled by Bloomberg. The calculation assumes the effective fed funds rate averages 0.375 percent after the first increase.

The ECB has the power to act to the extent it sees necessary to defend its inflation mandate, and is willing to use it, Draghi said in a speech in New York.

"He reiterated that the ECB is ready to do more if needed," said Minh Trang, a senior foreign-exchange trader at Silicon Valley Bank in Santa Clara, California. "So if you believe the euro zone will require more accommodation, then some euro weakness should follow."

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