The dollar rose sharply against a basket of major currencies buoyed by a bullish US jobs reported which stoked investor expectations for a faster pace of monetary policy tightening.
The U.S. dollar index, which measures the greenback’s strength against a trade-weighted basket of six major currencies, rose 0.66% to 88.65.
The Labor Department said Friday, U.S. non-farm payrolls rose by 200,000 jobs in January. That beat economists’ forecasts for 184,000 new jobs. While unemployed remained at unchanged on the prior month at 4.1%.
Wage growth, met expectations rising 0.3%, while wage growth in the previous month was revised upward to 0.3.
The Federal Reserve has remarked on numerous occasions its expectation that tighter labor markets would spur wage growth, leading to a faster pace of inflation. Analysts on Friday echoed the Fed’s sentiment on tighter labor markets boosting inflation, as they revised upward their forecast for both inflation and the number of rate hikes for the year.
BNP Paribas revised upward its assessment of core PCE inflation, the Fed’s preferred measure of inflation, to 2.2% from 2.0% previously, and said it expects the Fed to raise rates four times in 2018 compared to the prior estimate of just three hikes.
The dollar’s sharp rise weighed on the pound and euro – both currencies have made significant gains against the greenback in recent weeks amid investor expectations that the Bank of England and European Central Bank are poised to adopt tighter monetary policy measures.