The dollar was little changed against a basket of currencies on Friday as monthly US job growth data was its strongest in over 1-1/2 years while wage gains slowed more than expected, supporting the view the Federal Reserve would not quicken its pace on raising interest rates. The yen fell broadly after the Bank of Japan stuck to its dovish policy stance. BOJ Governor Haruhiko Kuroda sounded optimistic on growth, yet stressed there would be no plan to change monetary policy before reaching a 2 percent inflation target.
The U.S. Labor Department said nonfarm payrolls grew by 313,000 in February, the largest monthly increase since July 2016, but average hourly earnings rose only 0.1 percent, slower than the 0.3 percent increase in January and less than the 0.2 percent analysts had forecast. Traders bet a tightening labor market would buttress the case for the Fed to raise key borrowing costs later this month and possibly two more times later this year, but the pullback in wage gains should mitigate against four rate hikes in 2018.
“While this is good news for the U.S. economy, this doesn’t change anything with the Fed. The path of three rate hikes stays as our base case,” said Chuck Tomes, senior trader at Manulife Asset Management in Boston. The payrolls report may bolster the greenback in the short term, but trade tensions from U.S. President Donald Trump’s steel and aluminum tariffs should be a longer-term drag, as should faster growth outside the United States, Tomes said. The index that tracks the dollar against six major currencies fell 0.038 point or 0.04 percent, to 90.141.
The euro was down 0.03 percent, at $1.2306. The single currency also fell on Thursday as European Central Bank President Mario Draghi said regional inflation remained subdued and rising protectionism was a risk.
The dollar advanced to a one-week peak against the yen as the BOJ stuck to its negative rate policy on Friday and BOJ chief Kuroda, like Draghi, warned about the risk of rising protectionism and inflation staying sluggish. The yen also succumbed to traders scaling back safe-haven holdings of the Japanese currency on news Trump was prepared to meet with North Korea’s Kim Jong Un, a potential breakthrough in nuclear tensions with Pyongyang. The dollar was last up 0.57 percent, at 106.81 yen, while the euro was up 0.54 percent, at 131.46 yen.