Dollar Soars After Strong U.S. Jobs Report

Reuters

The dollar pushed to a new 11-year high against the euro and gained against the yen Friday after a strong U.S. jobs report solidified market expectations for the Federal Reserve to raise interest rates around midyear.

The euro fell to $1.0895, down 1.3% for the day and crossing below $1.09 for the first time since Sept. 5, 2003.

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The dollar rose 0.6% against the Japanese currency to Yen120.85.

The U.S. economy added 295,000 jobs in February on a seasonally adjusted basis, the Labor Department said. Economists had predicted 240,000 jobs would be created. The unemployment rate ticked down to 5.5% from 5.7% in January, below expectations of 5.6%.

In addition, hourly earnings and the participation rate, two components of the jobs data the Fed has watched closely, saw increases in February.

The report's details gave investors renewed confidence that the Fed could raise interest rates as early as midyear, said Vassili Serebriakov, currency strategist at BNP Paribas.

"This is another strong report; the dollar is regaining momentum," Mr. Serebriakov said. "The unemployment rate is getting into a zone where it signals a future acceleration of wages, which is important for the Fed. This increases the risk for a June rate hike."

The Federal Reserve has said it would consider raising interest rates when economic data, including employment and inflation, recover sufficiently from the financial crisis. Raising U.S. interest rates would lure investors to the dollar, as higher borrowing costs would increase returns on assets denominated in the currency.

The dollar has risen significantly against developed-market currencies since the summer as investors have moved into dollar-denominated assets in anticipation of higher interest rates. By comparison, central banks in the eurozone and Japan have been easing policy to ward off deflation and juice growth, weakening their respective currencies.

Fed funds futures, which investors use to bet on central-bank policy, showed Friday that investors and traders see a 44% likelihood of a rate increase in July, according to data from CME Group Inc. That compares with a 37% probability one day earlier.