Dollar jumps vs. yen, other currencies after jobs data

The dollar gained the most since June against a basket of currencies on Friday after a report showed a surprisingly shallow drop in U.S. jobs, raising expectations of a stronger U.S. recovery that could prompt the Federal Reserve to hike rates earlier than some had forecast.

"There's a sense that the U.S. is beginning to catch up and the recovery isn't as feeble as people thought," said Steven Englander, a currency strategist at Barclays Capital. "The shift is helping the dollar."

The dollar index /quotes/comstock/11j!i:dxy0 (DXY 75.91, +1.28, +1.72%) , which measures the performance of the dollar against a trade-weighted basket of six major currencies, jumped 1.6%, the most since June on a closing basis. It reached 75.819 from 74.619 in late North American trading Thursday.

The index is headed toward a 1.1% gain for the week, the best return since late October. It's still down 6.6% for the year.

News Hub: Jobs Data and the Economy
WSJ's Phil Izzo breaks down some of the details of today's jobs report that ran contrary to expectations, including a decline in jobs in the manufacturing sector. Plus, Evan Newmark and Dennis Berman discuss market outlook heading into the end of the year.
The dollar surged 2.4% against the Japanese yen on Friday to 90.51 yen, the highest since Nov. 12 and pushing it to a 4.4% gain on the week.

The euro fell 1.4% to $1.4847, falling below the key $1.50 level.

The shared currency is little changed on the week versus the dollar.

The U.S. Labor Department said the economy shed 11,000 jobs last month, a fraction of what analysts anticipated. The unemployment rate also surprisingly declined. See more on jobs data.

U.S. stocks posted strong gains, while U.S. Treasury bonds fell sharply, sending yields higher.
The data also sparked a big move in interest-rate futures, with traders raising bets that the Fed will increase its target rate by mid-2010. See more on fed futures in bond column.

Fed-funds futures are now fully pricing in a hike to 0.50% by August, from the current range of zero to 0.25%.

Futures for December 2010 imply a higher chance that the benchmark rate could reach 1% by then.

With a "light at the end of the tunnel of long and deep job losses," the market is reassessing the trajectory of Fed policy, Marc Chandler, currency strategist at Brown Brothers Harriman & Co., said in a note to clients.

"The dollar's weakness is largely cyclical in nature, rather than structural," he said. "The key cyclical driver was the extraordinarily aggressive monetary policy and the ample dollar liquidity. When these are normalized, we expect the dollar to find great traction."

The Canadian dollar rose 0.6% against its U.S. counterpart in earlier trading on Friday after data showed that Canada's employment rose by 79,000 jobs in November, much more than some economists expected, bringing the unemployment rate down 0.1 percentage point to 8.5%. The Canadian currency was little changed in recent trading.

Deborah Levine is a MarketWatch reporter, based in New York. Polya Lesova is reporter for MarketWatch, based in Frankfurt. Lisa Twaronite in Tokyo contributed to this report.


News Source: marketwatch.com


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