CNA – The US dollar jumped after data showed that United States (US) employers added significantly more jobs in January than economists expected, potentially giving the Federal Reserve more leeway to keep hiking interest rates.
The Labour Department’s closely watched employment report showed that nonfarm payrolls surged by 517,000 jobs last month. The department revised December data higher to show 260,000 jobs added instead of the previously reported 223,000.
Average hourly earnings rose 0.3 per cent after gaining 0.4 per cent in December. That lowered the year-on-year increase in wages to 4.4 per cent from 4.8 per cent in December. Economists polled forecast a gain of 185,000 jobs and a 4.3 per cent year-on-year jump in wages.
It is a “monster number”, said Bannockburn Global Forex chief market strategist Marc Chandler. The dollar was last up 1.12 per cent at 102.92 on the day against a basket of currencies, the highest since January 12 and it is on track for its best day since September 23.
The euro fell 0.98 per cent to USD1.08040. The dollar gained 1.82 per cent against the Japanese yen to 131.20, the highest since January 18 and is on track for its best day since June 17.
Sterling fell 1.39 per cent to USD1.20550, the lowest since January 6 and its worst day since December 15.
The surprisingly strong payrolls number reversed a move from Wednesday when traders aised bets that the US central bank would stop hiking borrowing costs after a widely expected 25-basis-point increase in March.
“After the Fed meeting it looked like markets had the advantage – it was still pricing in a rate cut, they took interest rates down, and they took the dollar down, and now I think 48 hours later the Fed looks like they might have the upper hand again,” Chandler said.
The US central bank on Wednesday raised rates by 25 basis points and said it had turned a key corner in the fight against high inflation, leading investors to price in a more dovish path going forward.
Fed officials in December said they expected to raise the central bank’s benchmark overnight interest rate above five per cent and they have stressed they will need to hold it in restrictive territory for a period of time in order to sustainably bring down inflation.
But traders had bet the rate will peak below five per cent and that the Fed will cut rates in the second half of the year as the economy slows.
Traders are now pricing in the Fed’s policy rate to peak at 5.03 per cent in June, up from 4.88 per cent on Thursday afternoon.
As rate hike expectations increase, however, fears of a bigger economic downturn may also weigh on markets.
“Whenever we see these big numbers, especially with the headlines, the fear of the Fed comes back with a vengeance because people are probably afraid that the Fed is going to push things even further than what they have, running the risk of not a soft landing, but more of a car crash,” said Allspring Global Investments senior investment strategist Brian Jacobsen.
The next major US economic release that may give further clues to Fed policy will be consumer price data for January due on February 14.