* Nonfarm payrolls increase 204,000 in October
* Expectations grow Fed may start cutting stimulus in
* Euro falls after shock ECB rate cut, French S&P downgrade
NEW YORK, Nov 8 The dollar rallied across the
board on Friday after a report showed an unexpected acceleration
in U.S. job growth in October, lifting expectations the Federal
Reserve may start scaling back massive stimulus before the end
of the year.
Employers added 204,000 jobs last month, the Labor
Department said, handily beating the consensus forecast for an
increase of 125,000. The report suggested the economy was on a
firm footing and that a partial government shutdown had less of
an impact on the economy than feared.
A cutback in Fed stimulus, at a time when the European
Central Bank and Bank of Japan are in easing mode, will boost
the dollar's yield appeal. The dollar has fallen in recent weeks
on speculation the Fed may not start reducing its $85 billion
per month bond purchases until next year.
"It's an impressively strong jobs number in the face of a
government shutdown and underlying weakness in the U.S. economy.
This number has totally re-written the outlook for the U.S.,"
said Richard Franulovich, senior currency strategist at Westpac
in New York.
"I have been dismissive of a December taper from the Federal
Reserve, and now it looks like a possibility."
The dollar index, which tracks the greenback versus a
basket of six currencies, rose 0.5 percent to 81.245, with the
peak on the day a near two-month high of 81.482.
The euro fell 0.5 percent to $1.3356, having hit a
session low of $1.3316, according to Reuters data, still above a
seven-week low of $1.3295 struck on Thursday.
Negative sentiment on the euro grew after the European
Central Bank shocked investors by cutting the interest rate on
Thursday and Standard & Poor's downgraded France's credit rating
to AA from AA+.
Money markets and the currency options market are suggesting
the euro will grind lower in the near term as it loses its yield
advantage over other major currencies.
Citigroup put a sell recommendation, targeting a drop to
"Given the ECB's view of a prolonged period of low
inflation, any further slowing in CPI will raise the threat of
negative deposit rates, which will be a big negative for the
euro," said Chris Turner, chief currency strategist at ING.
Against the yen, the dollar rose 0.9 percent to 98.99
yen, having climbed to a session peak of 99.21 yen. On Thursday,
the dollar hit a near seven-week high of 99.41 yen.
The dollar was on track for its second straight weekly gain
against the euro, with the latter falling 0.9 percent this week.
Against the yen, the dollar was headed for a gain of 0.3
percent, also a second week of advance.
Some analysts said the details of the jobs report still
suggest worries in the labor market, such as the falling labor
force participation rate, which has limited the dollar's rally.
"The payrolls are a nice surprise but the Fed is in no
condition to restart tapering talk having just reversed
themselves seven weeks ago," said Joseph Trevisani, chief market
strategist at WorldWideMarkets, in Woodcliff Lake, New Jersey.
After the jobs data, U.S. short-term interest rate futures
suggest traders are expecting a 47 percent chance the Fed will
hike rates in April 2015 and a 55 percent chance of a rate hike
in June 2015.
On Thursday, the April 2015 fed funds contract suggested a 43
percent chance of a rate hike and the June 2015 contract a 51