US dollar set for 12th weekly gain

The US Dollar (USD) gained on Friday, headed for a 12th straight week of gains, after a blockbuster U.S. jobs report for September raised the odds that the Federal Reserve will raise interest rates again this year.

The last time the dollar hit that milestone was in 2014.

The greenback this week was up 0.5%, but those 12 consecutive weeks of rises translated to an 8% increase in the dollar’s value. Against the yen, the dollar has advanced in four of the last five weeks.

Data showed U.S. nonfarm payrolls increased by 336,000 jobs last month. The numbers for August were revised higher to show 227,000 jobs added instead of the previously reported 187,000. Economists polled by Reuters had forecast September payrolls rising by 170,000 jobs.

Post-payrolls, U.S. rate futures have priced in a 31% chance of a rate increase next month, from about 20% on Thursday, according to the CME’s FedWatch tool.

The dollar index rose as high as 106.98, but has since pared its gains, trading up 0.1% at 106.43. Against the yen, the greenback gained 0.5% to 149.22.

“Clearly the labor market remains resilient, and continues to impress, despite 500 (basis points) of tightening over the last 18 months,” said Michael Brown, market analyst, at Trader X in London.

“With markets now seeing another 25 (basis-point) Fed hike by year-end as a roughly 50/50 chance, a hotter-than-expected CPI (consumer price index) print next week could seal the deal for such a move to come in November, and spark the next leg of upside in the U.S. dollar,” he added.

Monthly wage growth though remained moderate, with average hourly earnings rising 0.2% after a similar gain in August. In the 12 months through September, wages increased 4.2% after advancing 4.3% in August.

“When we go through the report today, average hourly earnings are probably soft enough that the Fed doesn’t need to hike, but we’ll see what happens with inflation, I think it still keeps that on the table,” said Tony Welch, chief investment officer, at SignatureFD in Atlanta.

The euro fell 0.2% to $1,0534, on track for a record 12th week of declines against the dollar.

The dollar’s recent strength has been underpinned by a rapid sell-off in U.S. government bonds, which sent yields to multi-year highs.

On Friday, benchmark 10-year U.S. Treasury yields hit fresh 16-year highs after the employment report.

Analysts said the bond sell-off was due to a combination of selling by some asset managers who had held overweight positions in government bonds, rising oil prices, a deluge of supply of government and corporate bonds, and investors finally accepting that central banks will keep rates high for a long time, particularly in the U.S. where economic data has been strong.

In other currencies, sterling was up 0.1% at $1.2195.

Currency bid prices at 10:44AM (1444 GMT)