NEW YORK: The U.S. dollar edged higher against a basket of currencies on Friday after a better-than-expected U.S. jobs report indicated a tight labor market that could lead the Federal Reserve to raise interest rates.
Nonfarm payrolls increased by 390,000 jobs last month, the Labor Department said Friday in its closely watched jobs report. Economists polled by Reuters had forecast a payroll increase of 325,000 jobs in May.
The U.S. dollar currency index, which tracks the greenback against six other major currencies, rose 0.2% to 101.91, after hitting 102.19 after the jobs report. The better-than-expected job gain is another sign the economy is still strong, while wage growth is starting to moderate amid a rebound in the labor force, said Michael Pearce, senior U.S. economist at Capital. Economics, in a footnote.
“With wage growth still well above rates consistent with the Fed’s 2% inflation target, that won’t stop the Fed from continuing to raise rates by 50 basis points at the next meeting or of the next two,” Pearce said.
The Fed has raised interest rates by three-quarters of a percentage point this year, and most Fed policymakers support raising interest rates by another half-percentage point each of their next two meetings.
Calling high inflation the U.S. central bank’s “number one challenge,” Fed Vice Chair Lael Brainard said on Thursday she backed at least two more half-a-day interest rate hikes. percentage point, and more if price pressures do not ease.
Investors have mixed views on the greenback, which is still near two-decade highs against a basket of peers.
George Saravelos, global head of forex research at Deutsche Bank, said the dollar is “pricing a safe-haven risk premium that is so extreme that it has rarely persisted over time and is now unraveling.” . Bullish analysts say the Fed’s tightening cycle is based on a stronger growth story than Europe’s, especially after the Russian oil embargo, which could hurt the eurozone economy .
The dollar rose 0.5% to an over-three-week high of 130.46 yen, with the Japanese currency not far off the two-decade low hit in May as the Bank of Japan (BoJ) s stuck to its policy of extremely low interest rates. .
BoJ Governor Haruhiko Kuroda – who has repeatedly said the bank will not reverse its massive monetary stimulus because the recent rise in inflation was mainly driven by commodity costs and likely temporary – said Friday that it was undesirable for prices to rise too much when household income growth remains weak.
In cryptocurrencies, bitcoin slid 2.5% to $29,676.05 as the world’s largest digital currency by market value continued to struggle to overcome selling pressure that pushed it past below the $30,000 level.