Dollar Soars on Robust Jobs Data

June 5, 2015 Wall Street Journal

By James Ramage

The dollar rose to a 13-year high against the yen and soared against the euro on Friday after a U.S. jobs report signaled a strengthening labor market, likely bolstering investors’ expectations for higher interest rates toward the end of the year.
The greenback rose to its highest level since June 2002 against the Japanese currency to as high 125.74 yen from ¥124.77 beforehand, and has settled around ¥125.66, up 1% for the day. The dollar increased against the common currency, with one euro buying $1.1096, from $1.1222 ahead of the numbers. The euro is down 1.3% against the dollar for the session.

The U.S. added 280,000 jobs on a seasonally adjusted basis last month, from 221,000 in April, a number that was revised down from 223,000, the Labor Department said. Economists had forecast 225,000 jobs would be created in May. The unemployment rate inched up to 5.5% from 5.4%, above expectations.

Hourly earnings, a key component within the monthly jobs numbers that the Federal Reserve wants to see rise faster, increased 0.3% in May. Economists had expected a 0.2% increase in wages from April.

The numbers, particularly the increase in wages, are helping to cement market expectations for the Fed to start raising interest rates at its September policy meeting, said Karl Schamotta, director of currency risk and strategy at Cambridge Global Payments, which helps corporations hedge their currencies exposure.

The dollar’s advance reverses its recent stumble against rival currencies since mid-March as investors’ doubts had grown over whether U.S. interest rates would rise before the end of the year. Weak U.S. data over the first quarter of 2015 and inconsistent numbers so far have raised questions about the buoyancy of America’s economy. But investors looked to the May jobs report to show that labor market gains over most of the past year have held and that the economy was starting to regain its footing.

“The momentum the American economy has is substantial, indicating we’re coming out of the winter shadow here,” Mr. Schamotta said. “The headline number was a thing of beauty, blowing away expectations on [Wall] Street. Unquestionably, this [jobs report] gives the dollar a boost.”

The Fed has said it is paying close attention to numbers for inflation and employment and would consider raising short-term interest rates when the U.S. economy has strengthened sufficiently in those areas. Higher U.S. rates would make the dollar more attractive to yield-hungry investors.

Read the full article here: