The dollar rose broadly on Friday, hitting a fresh five-week high against the yen, as a surprisingly strong US jobs report reinforced the view the Federal Reserve will not cut interest rates in the near term. The solid March jobs report eased concerns about the weakening US housing market and signs of softness in US manufacturing.
"This could well be the strongest economic report we've had out in the first quarter," said Michael Woolfolk, senior currency strategist at Bank of New York. "It suggests that the US economy is on firmer ground than earlier thought and the Fed need not cut interest rates under the current circumstances," he added.
Interest rate futures fell, with the implied prospects of a June rate cut by the Fed falling to 12 percent from 20 percent before the data was released.
Mid-afternoon in New York, the euro was down 0.4 percent against the dollar at $1.3373. Against the yen, the dollar rose as high as 119.38 yen, the highest since February 27, before trading back down to 119.32.
The dollar was up 0.5 percent against the Swiss franc at 1.2216 francs, while sterling slipped 0.3 percent to $1.9649. Data on Friday showed US non-farm payrolls growth totalled 180,000 jobs last month, exceeding the median forecast in a Reuters poll for 120,000. The government also revised up its estimate for jobs created in January and February - by 16,000 each month - to 162,000 and 113,000 respectively.
Analysts, however, said the dollar's rally after the jobs data could be fleeting. Marc Chandler, chief global currency strategist at Brown Brothers Harriman in New York, said the narrowing interest rate differential and diverging economic growth paths between the United States and euro zone could weigh on the dollar.
The European Central Bank holds a policy meeting next week, although investors are expecting the bank to hold euro zone interest rates steady at 3.75 percent. However, analysts believe the ECB will prepare financial markets for a rate increase in June and possibly one more by year-end.
"Dollar headwinds remain intact. Euro zone growth differentials...(are) decidedly dollar negative. The dollar's gains may prove short-lived," Chandler said. The next key event for the market will be the minutes of the Federal Open Market Committee's March meeting, which are due on Wednesday. The minutes should provide some details behind the wording change in the Fed statement from that meeting. The Fed left rates on hold at 5.25 percent, but dropped a phrase in its statement pointing to future monetary policy tightening.
Analysts expect the minutes to express concern about lingering inflationary pressures in the US economy and, at the same time, acknowledge softness in the housing market. Overall, the expected balanced outlook from the FOMC minutes should firm expectations for the dollar to trade in narrow ranges in the coming sessions.
In terms of US economic data, markets will focus on producer prices, the international trade balance report for February, and a preliminary consumer sentiment survey for April. "All told, the indicators next week will support the view that the business expansion still has some forward momentum," Massachusetts-based research firm Global Insight said in a report.
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