Dollar-yen Sets Pace as Greenback Pares Weekly Drop After NFP

  • Jobs report shows wage pressures build, hiring remains robust
  • Data seen to keep Fed on track for at least 2 hikes in 2017

The dollar rose for the first day in three on Friday, extending gains after the U.S. December employment report showed acceptable jobs growth, coupled with possible signs of wage pressures, ingredients that will keep the Fed vigilant and on its declared path of at least two rate hikes in 2017.

Foreign exchange flows were only modest as the dollar rose 0.5 percent as measured by the Bloomberg dollar index, with holidays in many European trading centers keeping participation light and trading minimal. Dollar gains were paced by a 1.35 percent rise against the yen, the biggest since Dec. 15, after dollar-yen rebounded from its overnight low at 115.07 to trade at 117.00, gaining some extra lift from a jump in the 10-year Treasury yield, which climbed to ~2.42% from a low near 2.33%.

  • The jobs report was described as “very decent,” by Cleveland Fed president Loretta Mester, while Saxo Bank head of foreign-exchange strategy John Hardy said “this was a solid report if we look at earnings coming roaring back”; Dallas Fed’s Robert Kaplan and Richmond Fed’s Jeffrey Lacker later in the day joined Mester in endorsing rate hikes
  • Some players may have dipped their toes into the water with fresh dollar longs, while other dollar buyers may emerge in the second-half of the month, a trader in London said; a second trader expected macro trading accounts to begin rebuilding dollar longs as soon as next week
  • USD/JPY rose to a fresh high at 117.00 just ahead of the London close, as the yield-sensitive pair responded to the rise in Treasury yields; the dollar gain was slowed by offers above 116.80 and by technical resistance from the 21-DMA at 116.90; the dollar may find further resistance at Thursday’s 117.43 high
  • EUR/USD was trading near its session low at 1.0536 after its drop was cushioned by bids in the 1.0540/50 zone, a trader in London said; EUR may find technical support at Thursday’s 1.0481 low
  • USD/CAD fell to 1.3178, its lowest since Dec. 14, before rebounding as the CAD gained short-lived support from a robust Canadian jobs report that showed the economy added 53.7k jobs in December, far surpassing expectations for a drop of 2.5k and with gains coming as full-time hiring outstripped losses in the part-time category
  • The U.S. December employment report showed non-farm payrolls rose 156k vs est. 175k, with the miss offset by an upward revision of 26k to November data; average hourly earnings rose 0.4% m/m vs est. 0.3%, bringing the y/y rate to 2.9%
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