The dollar strengthened on Friday after job growth unexpectedly accelerated in the world’s largest economy, dampening expectations that the Federal Reserve will soon stop raising interest rates.
Government bonds sold off sharply, reversing more than yesterday’s strong gains.
Wall Street’s blue-chip S&P 500 fell 0.1% after the payrolls report and the tech-heavy Nasdaq Composite fell 0.1%, largely erasing earlier losses. Amazon fell 5% and Apple eventually rose 3% after the two groups announced their earnings for the last three months of 2022 on Thursday evening.
A measure of dollar strength against a basket of six peers rose 0.9%, although the global reserve currency has fallen nearly 9% since September.
Major central banks raised interest rates this week to their highest levels since the global financial crisis, but investors rushed into stocks and bonds after officials hinted that the current round of monetary tightening could be coming to an end. But Friday’s monthly jobs figures, which suggest the US economy remains resilient despite a significant rate hike over the past year, undermined some of the optimism.
The United States added 517,000 jobs in January, well above the 185,000 predicted by Wall Street economists. The economy added 260,000 in December. The jobless rate fell to 3.4% from 3.5% the previous month.
“I am shocked by these numbers,” said Steven Blitz, chief US economist at TS Lombard. “If they truly reflect what’s happening in the economy, the question has to be asked: what is the Fed doing to slow rates?”
Having previously predicted the Fed would pause after another quarter-percentage-point move in March, Blitz said he now expects the central bank to replicate that move at its May meeting.
Brian Coulton, chief economist at Fitch Ratings, said that “before these numbers we thought the Fed might have another hike, but today’s jobs numbers make me think there is at least two more remain.
Earlier in the week, “markets seemed pretty confident about the fight against the Fed,” Coulton added. “These numbers might just introduce some doubt.”
U.S. government bonds sold off, with the 10-year Treasury yield jumping 0.11 percentage points to 3.51%, erasing a decline earlier in the week triggered in part by the US rate hike. fed. The interest rate-sensitive two-year Treasury yield rose 0.18 percentage points to 4.27% as the price of debt fell.
At the same time, economic activity in the vast US services sector rose more than expected, with the latest ISM non-manufacturing index rising from 49.2% in December to 55.2% in January. Economists polled by Reuters had expected a weaker improvement to 50.4%.
Europe’s Stoxx 600 stock index gained 0.3% on Friday, with Germany’s Dax falling 0.2%. London’s FTSE 100 rose 1% to a record high. Yields on German 10-year Bunds and Italian government bonds of the same duration rose slightly, retracing some of the strong gains from the previous session.
The moves come after the Bank of England and the European Central Bank raised rates by 0.5 percentage points on Thursday, and the Fed raised its key interest rate by a quarter of a percentage point on Wednesday.
