By James Ramage
The dollar pushed to a new 11-year high against the euro and
rose against the yen Friday after a strong U.S. jobs report
solidified market expectations for the Federal Reserve to raise
interest rates around midyear.
The euro fell to $1.0873, down 1.5% for the day and crossing
below $1.09 for the first time since Sept. 4, 2003.
The dollar rose 0.7% against the Japanese currency to a
three-month high of Yen120.96, approaching its strongest level
since July 2007.
The U.S. economy added 295,000 jobs last month on a seasonally
adjusted basis, the Labor Department said. Economists had predicted
240,000 jobs were created in February.
The unemployment rate ticked down to 5.5% from 5.7% in January,
below expectations of 5.6%. Hourly earnings and wages, components
of the jobs data the Fed has watched closely, saw modest increases
in February.
The report's details gave investors renewed confidence that the
Fed could raise interest rates as early as midyear, said Vassili
Serebriakov, currency strategist at BNP Paribas.
"This is another strong report; the dollar is regaining
momentum," Mr. Serebriakov said. "The unemployment rate is getting
into a zone where it signals a future acceleration of wages, which
is important for the Fed. This increases the risk for a June rate
hike."
Fed funds futures, which investors use to bet on central-bank
policy, showed Friday that investors and traders see a 47%
likelihood of a rate increase in July, according to data from CME
Group Inc. That compares with a 37% probability one day
earlier.
The Federal Reserve has said it would consider raising interest
rates when economic data, including employment and inflation,
recover sufficiently from the financial crisis. Raising U.S.
interest rates would lure investors to the dollar, as higher
borrowing costs would increase returns on assets denominated in the
currency.
The dollar has risen significantly against developed-market
currencies since the summer as investors have moved into
dollar-denominated assets in anticipation of higher interest rates.
By comparison, central banks in the eurozone and Japan have been
easing policy to ward off deflation and juice growth, weakening
their respective currencies.
Friday's U.S. jobs data highlighted differences in monetary
policy between the Fed and central banks across the globe, said Joe
Manimbo, senior market analyst at Western Union.
"The divergence trade has kicked into a higher gear," Mr.
Manimbo said.
Write to James Ramage at james.ramage@wsj.com