WASHINGTON, June 2 (Reuters) – The US dollar rallied on Friday after May’s nonfarm payrolls report showed strong employment gains as traders weighed the merits of the US Federal Reserve potentially pushing a rate hike in June would skip.
The report showed that public and private sector payrolls rose by 339,000 in May, far exceeding the average forecast of 190,000 by economists polled by Reuters. May’s increase followed a rise of 253,000 in April.
Despite strong hiring, the unemployment rate rose to 3.7%, from a 53-year low of 3.4% in April.
The dollar index, which measures the US currency against six others, most recently rose 0.435% to 103,980, on track for its biggest daily percentage increase since mid-May. Over the course of the week, however, the dollar fell 0.2%, its biggest weekly decline since early May.
The dollar index fell 0.62% on Thursday, its worst day in nearly a month, after Fed officials indicated the central bank will refrain from a rate hike this month.
“The Fed has cornered itself with these most recent statements about the need to take a break and then maybe look at a hike in July, and I think they will regret it after the non- today’s agricultural payroll.” said Paresh Upadhyaya, director of fixed income and currency strategy at Amundi US.
Money markets are pricing in about a 29% chance of an increase in June, up from nearly 70% earlier this week.
Philadelphia Fed President Patrick Harker said Thursday it was “time to at least hit the stop button for one meeting and see how it goes.”
A day earlier, Fed Governor Philip Jefferson said skipping a rate hike would “allow the committee to review more data before making decisions about the extent of additional policy strengthening.”
“The challenge is that we entered the Fed blackout period ahead of the (Federal Open Market Committee) meeting, which means it will be hard to see any backlash from officials or any guidance from officials after this employment report ,” said Marc Chandler, chief market strategist at Bannockburn Global Forex.
Thursday night’s US Senate approval of a bill to suspend the debt ceiling and avoid catastrophic bankruptcy ended a mainstay for the dollar, which had paradoxically been a major beneficiary of uncertainty due to its safe haven status.
On Friday, Fitch Ratings said the United States’ “AAA” rating will remain negative despite the debt limit agreement, citing repeated political deadlocks and last-minute suspensions of the ceiling before the deadline.
The dollar gained 0.8% against the yen this week, on track for its biggest weekly percentage gain since mid-May.
The British pound rose 0.8% against the dollar, on pace for its biggest weekly gain since late April.
The euro last fell 0.45% to $1.07135, from its highest point in about a week following a boost on Thursday from European Central Bank President Christine Lagarde who said further policy tightening was necessary.
The Australian dollar skyrocketed after Australia’s independent wage-setting body announced it would raise the minimum wage by 5.75% from July 1. The Aussie was up as much as 0.93% to $0.663, its strongest since May 24, and was most recently up 0.59% against the dollar at $0.661.
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Bid prices in currency at 15:03 (1903 GMT)
Reporting by Hannah Lang in Washington; Additional reporting by Amanda Cooper and Dhara Ranasinghe in London and Kevin Buckland in Tokyo Edited by Mark Heinrich, Mark Potter, Andrew Heavens, Emelia Sithole-Matarise and Sriraj Kalluvila
