NEW YORK (Reuters) - The dollar firmed broadly, hitting a fresh 7-month high against the yen on Friday, after government data showed the U.S. economy created private sector jobs that were the highest in almost three years.
The report suggests the U.S. labor sector is on a gradual but steady recovery and should affirm expectations that the Federal Reserve would hike interest rates ahead of the European Central Bank, Bank of England and Bank of Japan.
“To the extent that the jobs data reflects continued improvement in the U.S. labor market it fits into our general view that the output gap in the U.S. is closing, albeit slowly,” said Marc Chandler, global head of FX strategy at Brown Brothers Harriman in New York.
“This will allow the Fed to raise interest rates before the BoJ, ECB, and BoE. We expect this to underpin the dollar on a medium-term perspective,” he said.
The Labor department reported that 162,000 new jobs were added to the U.S. economy, lower than market forecasts for a 190,000 gain, but private sector jobs rose to 123,000 to mark the largest since May 2007.
In midday trading, the euro fell 0.7 percent against the dollar to $1.3481. Traders said global macro hedge funds had sold euros following the jobs data.
Despite the euro’s weakness on Friday, the single euro zone currency was still up slightly on the week versus the dollar, recovering modestly from losses the last two weeks.
Against the yen, the dollar rose as high as 94.69 yen, the loftiest since late August, according to Reuters data. It was last at 94.65 yen, up 0.9 percent on the day.
Dealers said there are options-related barriers near 95 yen, which have hindered the dollar/yen’s pair upside momentum.
The greenback was up 2.3 percent against the yen this week, on track for it’s best weekly performance since early December.
Sterling dropped 0.7 percent to $1.5190.
The ICE Futures’ dollar index .DXY, a measure of the greenback’s value against six major currencies, rose 0.6 percent to 81.306.
Some currency analysts believe that given the generally upbeat non-farm payrolls data, the Fed may raise the discount rate again on Monday when it holds a meeting. The discount rate is that which the Fed charges commercial banks and other depositary institutions on loans.
“Given that the central bank has already ended their asset purchase program, another discount rate hike would be the next logical step,” said Kathy Lien, director of FX research at GFT in New York. “Raising the discount rate would help the Fed normalize monetary policy without affecting households.”
Editing by John Picinich