US dollar jumps, traders pare rate cut bets after strong jobs report
THE US dollar index jumped to a seven-week high on Friday after data showed that employers added far more jobs in January than expected, reducing the chances of near-term Federal Reserve interest rate cuts.
Nonfarm payrolls increased by 353,000 last month, beating economists’ expectations for a gain of 180,000. Average hourly earnings increased 0.6 per cent after rising 0.4 per cent in December.
It “blew away expectations,” said Marc Chandler, chief market strategist at Bannockburn Global Forex in New York. “The market has further cut the chances of a March cut and reduced the amount of cuts (it expects) the Fed will deliver this year.”
The US dollar had weakened in recent days in line with falling Treasury yields, even after Fed chair Jerome Powell on Wednesday said that a March rate cut was unlikely. Treasuries have benefited from safe haven demand due to renewed concerns about the financial health of US regional banks.
But the move in bonds and the US dollar in large part also reflect repositioning, following a strong January for the greenback and higher Treasury yields during the month.
“After a big move in most of January, I would say there was some position adjusting,” said Chandler, adding that, following Friday’s jobs data, “I’m looking for a firmer dollar tone.”
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The US dollar index was last at 103.98, the highest since Dec 13 and up 0.9 per cent on the day. The euro fell to US$1.0784, down 0.8 per cent on the day. The greenback rose to 148.3 yen, up 1.29 per cent.
Traders are now pricing in an 22 per cent chance of a rate cut in March, down from 38 per cent on Thursday, and a 71 per cent probability for May, down from 94 per cent, according to the CME Group’s FedWatch Tool.
Sterling fell 0.81 per cent to US$1.26385. The British currency had gained on Thursday after the Bank of England kept interest rates at a nearly 16-year high on Thursday but opened up the possibility of cutting them as inflation falls.
The Australian dollar fell to a 10-week low of US$0.6507.
The Aussie has been trying to stage a short-term bullish reversal at “critical support” near US$0.65, JPMorgan analysts Jason Hunter and Marko Kolanovic said on Friday in a report. If it fails to break above resistance at US$0.664 to US$0.6657 and sees further weakness it may next test support at the US$0.617 to US$0.6296 area, they said.
In cryptocurrencies, Bitcoin fell 0.17 per cent to US$43,033. REUTERS
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