THE US dollar gained after a solid jobs report for March on Friday (Apr 7) added to expectations that the Federal Reserve will hike rates again in May. Meanwhile, the yen weakened as Japan’s new central bank governor indicated that he was in no hurry to dial back its massive stimulus.

US employers maintained a strong pace of hiring in March, adding 236,000 jobs, pushing the unemployment rate back down to 3.5 per cent and signalling labour-market resilience which will keep the Fed on track to raise interest rates one more time next month.

“In my view, the pendulum of market sentiment is going to swing back in favour of a Fed rate hike early next month,” said Marc Chandler, chief market strategist at Bannockburn Global Forex in New York. He noted that momentum indicators for US dollar currency pairs are “overstretched” and likely to favour near-term US dollar strength.

The US dollar index was last up 0.67 per cent against a basket of currencies at 102.68, the highest since Apr 3. The euro fell 0.51 per cent to US$1.0841, the lowest since Apr 3.

Consumer price data on Wednesday is this week’s major US economic focus; it is expected to show that headline inflation rose by 0.3 per cent in March, while core inflation increased by 0.4 per cent.

Traders are also closely watching data on bank lending, after the collapse of Silicon Valley Bank in mid-March sparked fears about bank contagion and led the government and Fed to intervene to shore up liquidity in the sector.

GET BT IN YOUR INBOX DAILY

Start and end each day with the latest news stories and analyses delivered straight to your inbox.

Sign UpVIEW ALL

“We know from the Fed’s point of view, price pressures remain elevated and the labour market remains robust. That hasn’t really changed, what’s changed is bank behaviour,” said Chandler.

The latest Fed data shows that commercial and industrial loans at commercial banks dropped to US$2.756 trillion in the week ending Mar 29, from US$2.824 trillion in the week ending Mar 15.

Fed funds futures traders are currently pricing in a 70 per cent probability that the Fed will hike rates by an additional 25 basis points at its May 2-3 meeting.

The US dollar gained against the yen. This came after the Bank of Japan’s new governor Kazuo Ueda said it was appropriate to maintain the bank’s ultra-loose monetary policy for now as inflation has yet to hit 2 per cent as a trend. The greenback was last up 1 per cent at 133.45 yen, the highest since Apr 3. REUTERS