The U.S. dollar was on track to break a three-session skid on Friday, rising firmly against its major currencies as U.S. jobs data showed that wages were rising, underlining expectations for a pickup in inflation.
What are currencies doing?
The ICE U.S. Dollar Index DXY, +0.61% a measure of the currency against a basket of six major rivals, rose 0.6% to 89.177, erasing a weekly decline. This puts the index at its biggest daily gain since late October, according to FactSet data. On the week, the index is up 0.1%, reflecting its weakness in the first half.
The wider WSJ Dollar Index BUXX, +0.74% rose 0.7% to 83.58, after ending at its lowest level since Dec. 30, 2014, on Thursday.
The euro EURUSD, -0.3838% fell to $1.2459 from $1.2507 late Thursday in New York. On the week, the shared currency has strengthened 0.3%.
The pound GBPUSD, -0.9957% declined to $1.4121 from $1.4261 on Thursday, on track for a 0.3% loss this week.
The buck also advanced against the Japanese yen USDJPY, +0.67% buying ¥110.16, compared with ¥109.41 a day ago. The dollar soared 1.4% against the Japanese currency this week.
Against the Canadian dollar USDCAD, +1.3207% the greenback also rallied throughout the day but got an additional push after Canada’s Prime Minister Justin Trudeau said Canada would be willing to walk away from the North American Free Trade Agreement if necessary. One dollar last bought C$1.2421, up from C$1.2267 late Thursday. On the week, the U.S.-Canadian dollar pair is up 0.9%.
What is driving the market?
The U.S. currency kicked Friday off with modest gains, which it extended following a jobs report that showed wage growth hit an 8-1/2-year high, rising 0.3% in January. The unemployment rate was unchanged at 4.1%, in line with expectations, while nonfarm payrolls showed 200,000 new jobs added, beating the MarketWatch consensus estimate of 190,000.
Wage growth is an indicator of inflation, which has been stubbornly low in the U.S. and arguably held the Federal Reserve back from raising interest rates at a quicker pace. After the Fed said in its policy update on Wednesday that inflation was expected to rise in 2018, Friday’s data support this thesis.
Read: Are 4 rate hikes enough to get the dollar back on track?
As of now, the Fed is expected to hike rates three times this year.
U.S. Treasury yields have rallied this week on concerns inflation will rise faster than currently expected and potentially warrant sharp rises in interest rates.
The yield on benchmark 10-year Treasury notes TMUBMUSD10Y, +0.00% rose to 2.85% on Friday, hitting around a four-year high.
What are strategists saying?
“This a much stronger outcome than most expected,” said Luke Bartholomew, investment strategist at Aberdeen Standard Investments. “The headline unemployment is good but the wage growth is really positive. it definitely makes it a bit more likely that the Fed will have to do more than the three hikes that they’re currently planning for this year.”
“U.S. bond markets aren’t going to like it though. Treasurys have been suffering a sharp selloff and such strong numbers are going to pour fuel on the fire,” Bartholomew said.
Ahead of the data report, Boris Schlossberg, managing director of FX strategy at BK Asset Management said that if today’s price action “proves dollar positive could mark a near-term bottom for the buck which has been under relentless assault over the past few months.”
Read: These are the 2 biggest reasons for a weaker U.S. dollar
Also read: Why Trump’s $1.5 trillion infrastructure package could be another weight on the dollar
What are the data?
Consumer sentiment for January came in at 95.7, marginally beating the MarketWatch consensus forecast of 95.
Factory orders for December rose to 1.7%, in line with the November number, but slightly better than the 1.6% MarketWatch consensus estimate.