Dollar Climbs as Job Gains Bolster Case for Fed Rate Increase

  • Greenback reaches 1-week high against euro, rises versus yen
  • Divergence play is back in currencies: Charles Schwab & Co.

U.S. Adds 255,000 Jobs in July, Jobless Rate at 4.9%

The dollar rose, touching its strongest in more than a week against the euro, after a report on U.S. job growth for July bolstered bets that the Federal Reserve will raise interest rates as soon as this year.

The greenback climbed versus major currencies, posting its biggest weekly gain since June versus the euro, as the Labor Department said nonfarm payrolls climbed 255,000 in July, compared with the 180,000 median forecast in a Bloomberg survey.

Evidence of strength in the world’s biggest economy may help the dollar rebound from a slump of almost 4 percent this year by reviving expectations that U.S. monetary policy will further diverge from that of the Bank of Japan and the European Central Bank, which are adding stimulus to spur growth.

“We’ve been long-term bullish on the dollar and we continue to be,” said Kathy Jones, New York-based chief fixed-income strategist at Charles Schwab & Co. “This number should push us more towards a rate hike and more divergence.”

The Bloomberg Dollar Spot Index, which tracks the currency against 10 major peers, rose 0.3 percent as of 5 p.m. in New York. The greenback gained 0.4 percent to $1.1086 per euro, and 0.6 percent to 101.82 yen. Its 0.8 percent weekly gain versus the euro is tied for the steepest rally since the week of the U.K. vote to leave the European Union.

‘Picking Up’

The Fed kept rates unchanged at its meeting last week, while saying “near-term risks to the economic outlook have diminished.” Officials also underscored a plan to stick to a gradual pace of policy tightening.

The payrolls data, which included signs of rising wages, may allay concern fueled by a much weaker-than-projected report on second-quarter economic growth last week.

“It’s very positive data for the U.S. dollar,” said Shaun Osborne, chief foreign-exchange strategist at Bank of Nova Scotia in Toronto. “The data will support the impression that, after a soft first half, economic prospects are picking up again.”

The market-implied probability of a rate increase this year rose to 48 percent, from about 36 percent in the minutes before the release of the labor figures, futures data show.

Pain Eased

“The U.S. dollar should be bid here,” said Bipan Rai, senior foreign-exchange and macro strategist at Canadian Imperial Bank of Commerce in Toronto. “Taken with the firmer wages number, the pain from last week’s growth number has been eased.”

The labor report is welcome news for hedge funds and other large speculators in the futures market, who grew more bullish on the dollar in recent weeks, data from the Commodity Futures Trading Commission show. Bets the greenback will rise outnumbered bearish wagers by about 149,00 contracts this week, the most since February.

The U.S. currency is projected to strengthen to $1.08 per euro and 105 yen by the end of the year, according to the median forecasts in Bloomberg surveys of analysts.

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