Dollar gives back gains; strong wage growth complicates Fed policy

THE dollar dipped on Friday (Dec 2) as a Federal Reserve official said rate hikes are likely to slow and as investors took profits from earlier gains after jobs data and wage inflation were surprisingly strong in November and muddied the outlook for how hawkish the US central bank will be.

The greenback initially jumped after data showed that employers added 263,000 jobs in November, well above estimates of 200,000.

“Stronger-than-expected hiring can buy the Fed more time to stay aggressive,” Joe Manimbo, senior market analyst at Convera in Washington, said.

The dollar gave back gains as investors took profits before the weekend and as Fed officials spoke on the outlook.

Chicago Fed president Charles Evans said that the pace of increases is likely to slow, but added that the US central bank will likely need to raise borrowing costs to a “slightly higher” peak than envisioned in forecasts from September.

Richmond Fed president Thomas Barkin also said the US is likely in a sustained period in which there will remain a shortage of workers, complicating the Fed’s aim of getting labour demand back into balance.

The dollar index was last down 0.13 per cent on the day against a basket of currencies at 104.50, and the euro gained 0.10 per cent to US$1.0537, the highest since June 28.

The greenback slipped 0.71 per cent on the day against the Japanese yen to 134.38. It earlier reached 133.62 yen, the weakest since August 16.

The next major US economic indicator will be consumer price inflation data due on Dec. 13, one day before the Fed concludes its two-day meeting.

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The US central bank is expected to increase rates by an additional 50 basis points at the meeting.

Fed funds futures traders are now pricing for the Fed’s benchmark rate to peak at 4.92 per cent in May. REUTERS