Dollar gains as rate hike still viewed as likely

The U.S. dollar gained on Friday, erasing earlier losses, as investors viewed the Federal Reserve as still likely to raise interest rates in the coming months, despite disappointing jobs growth in August.

Nonfarm payrolls rose by 151,000 jobs last month, the Labor Department said on Friday, below the 180,000 jobs that economists had expected.

“The jobs data is not weak enough to get people to give up on their Fed view,” said Marc Chandler, global head of currency strategy at Brown Brothers Harriman in New York.

Hawkish statements from Fed Chair Janet Yellen and Vice Chair Stanley Fischer last week increased expectations before the jobs data that the U.S. central bank is closer to raising rates.

Some economists and investors believe a rate hike could happen when the Fed meets later this month, though most see the December meeting as the most likely time for a hike this year.

Goldman Sachs economists on Friday revised their expectations of a September rate hike upward to 55 percent, saying employment growth was above the pace Fed officials typically consider sufficient to hold the unemployment rate steady over time.

Traders see a 24 percent chance of a September hike, unchanged on the day, and a 57 percent chance of an increase by December, according to the CME Group’s FedWatch tool.

Richmond Federal Reserve Bank President Jeffrey Lacker said on Friday that the U.S. economy appears strong enough to warrant significantly higher interest rates.

The dollar index .DXY, which measures the greenback against a basket of six major currencies, rose 0.21 percent to 95.667, after earlier falling to 95.189, the lowest level since last Friday.

The greenback also jumped 0.71 percent to 104.27 yen JPY=, after earlier rising to 104.31 yen, the highest since July 29.

The European Central Bank meeting next week and Bank of Japan meeting later in the month will also be watched for signs of further easing as they struggle to revive inflation and growth in the regions.

“The risk for this month is that the BOJ will underdeliver… and the yen will strengthen in response,” said Daragh Maher, head of FX strategy, U.S., at HSBC in New York. “But for now the mood does seem to be to buy dollar/yen on dips.”

Source: Reuters