Currencies: Dollar Springs Higher After Jobs Report

The U.S. dollar rose against most major currencies on Friday, heading for a third straight week of gains, as market participants digested the jobs report, which included weaker-than-expected job creation in April.

The euro skidded after the latest update on economic activity for the region came in a little weaker than expected.

What are currencies doing?

The ICE U.S. Dollar Index DXY, +0.32%  rose 0.5% to 92.836, trading around its highest level since early January. The index was on track for a 1.1% weekly gain, which would mark a third straight week of advances.

The euro EURUSD, -0.3921%  fell to $1.1918 from $1.1988 late Thursday in New York, heading for a 1.4% weekly slide.

The pound GBPUSD, -0.3978%  exchanged hands at $1.3505, down from $1.3573 late Thursday, trading around the lowest level since mid-January.

Meanwhile, the yen USDJPY, -0.01%  stood out as the only major currency to rise against the dollar on Friday. The buck bought ¥108.99 compared with ¥109.19 late Thursday in New York.

What is driving the market?

The jobs report, which was the latest health check on the U.S. economy, was somewhat mixed, with weaker-than-expected nonfarm payrolls at 164,000 versus 188,000 expected, and monthly wage gains of 0.1% compared with the 0.2% consensus forecast. Yet, the unemployment rate dropped to 3.9% from 4.1%, marking its lowest since late 2000. The dollar was trading rather choppy immediately following the release, paring modest gains and even sinking into negative territory before picking up steam again.

Read: Unemployment rate falls to 17-year low as U.S. adds 164,000 new jobs

Jobs data are among the figures the Federal Reserve uses in determining monetary policy, so a surprisingly good or bad number tends to influence the case for policy changes. On Wednesday, the central bank left interest rates unchanged, as expected, but didn’t give the market further indications on future policy. At least two more rate increases are expected this year, following one in March.

Developments in Beijing were also drawing focus. as U.S. and Chinese officials meet to resolve tensions on trade. Worries about tariff-related hostilities between the top two global economies have roiled financial markets in recent months. The U.S. has handed China a lengthy list of demands, the Wall Street Journal reported, including a demand to reduce the bilateral trade deficit by at least $200 billion by the end of 2020. The deficit stood at $375 billion last year.

Meanwhile, the euro was set for a rough end to an already downbeat weak after the final March purchasing managers index for the region came in weaker than expected. The composite PMI slipped to 55.1 from 55.2 in March. The reading on eurozone powerhouse Germany fell to a 19-month low at 54.6.

What are strategists saying?

“The U.S. jobs report was broadly disappointing. However, the Federal Reserve will look through it and investors should too,” wrote Marc Chandler, global head of currency strategy at Brown Brothers Harriman. “A June hike is still by far the most likely scenario.”

“There were two bright spots of the report to note,” he added, citing the lower unemployment rate as well as a more job creation in manufacturing.

“While April’s headline jobs figure is a bad miss, two months of underwhelming levels of jobs creation are hardly cause for panic,” said David Lamb, head of dealing at FEXCO Corporate Payments. “Of far greater concern is America’s stubbornly slow rate of wage growth. The fragility of Americans’ paypackets will give even the most hawkish members of the Fed serious pause for thought.”

What else is in focus?

Several Federal Reserve officials are scheduled to speak on Friday. New York Fed President William Dudley kicks off the speeches at 12:45 p.m. Eastern at Bloomberg headquarters in New York, covering “financial tumult of our times and challenges ahead.”

San Francisco Fed President John Williams is set to appear at a monetary policy conference at the Stanford University’s Hoover Institution at 3 p.m. Eastern. At the same conference, Fed Vice Chair for Supervision Randal Quarles steps up at 5:30 p.m. Eastern to talk about liquidity regulation and the Fed’s balance sheet.

Dallas Fed President Rob Kaplan, Atlanta Fed President Raphael Bostic and Kansas City Fed President Esther George are all slated to take part in a panel discussion at the conference at 8 p.m. Eastern.

In other assets, U.S. stock opened lower, with both the DJIA, +0.51%  and SPX, +0.41%  in the red, while Treasury yields continued to ease. The 10-year Treasury note TMUBMUSD10Y, -0.03%  last yielded 2.929%.

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