Dollar rises as above-forecast jobs growth backs Fed rate plans

by 11 Jan 2016
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.

"A very strong jobs report, with nonfarm payrolls handily beating, is managing to pull the market’s focus back to the U.S. dollar and potential for Fed rate hikes this year," said John Hardy, Saxo Bank A/S’s Hellerup, Denmark-based head of foreign- exchange strategy.

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 rose 2 percent against the dollar this week as investors sought the safest assets.

The greenback rose 0.4 percent to $1.0889 per euro and was 0.1 percent higher at 117.84 yen as of 1:40 p.m. in New York. The Bloomberg Dollar Spot Index, which tracks the currency versus 10 peers, added 0.4 percent to 1,241.74. 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.

“This means that the Fed continues to be on track for rate increases,” said Georgette Boele, a currency strategist at ABN Amro Bank NV in Amsterdam. That’s “good for the U.S. dollar.”

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.

Lananh Nguyen and Andrea Wong
with assistance from Rachel Evans
Bloomberg News