The dollar climbed sharply on Friday after US labour market data showed more jobs were created in January than expected, while wages also rose at an unexpectedly sharp pace.
US non-farm payrolls data showed that 200,000 new jobs were created in January, up from 160,000 in December and beating market forecasts of a rise of 180,000.
While the rate of unemployment remained at a record low of 4.1%, the show-stopping number was rate of increase in average hourly earnings - recording an annual rate of 2.9%, up from December's 2.5% and beating expectations of 2.6%.
Wage data impressive
Luke Bartholomew, strategist at Aberdeen Standard Investments, said the figures were stronger than most had expected - especially the wage data.
"The headline unemployment is good but the wage growth is really positive," he said.
"It definitely makes it a bit more likely that the Fed will has to do more than the three hikes that they’re currently planning for this year.
"US bond markets aren’t going to like it though. Treasuries have been suffering a sharp sell-off and such strong numbers are going to pour fuel on the fire."
David Lamb, head of dealing at Fexco Corporate Payments agreed and hailed the fightback from the dollar.
"For Dollarwatchers, it’s that barnstorming wage growth figure that’s making the weather," he said.
“With the average American’s paypacket now rising at a whisker under 3% a year, the Fed’s newly anointed Chairman will have little hesitation in signing off the three interest rate hikes planned for 2018.
"The question is – could three hikes become four?"
Miles Eakers, chief market analyst at Centtrip agreed: "With the labour market at or close to full capacity, employee earnings are on the rise, which is likely to accelerate wage-driven inflationary pressure.
"This could accelerate the path of monetary tightening and cause the Federal Reserve to raise interest rates this year at a faster pace."
Breaking down the data
Figures from the US Bureau of Labour Statistics released today showed employment continued to rise in construction, food services, healthcare and manufacturing.
Construction added 36,000 jobs in January, with employment in residential construction continuing to trend up over the month (+5,000). Over the full year, construction employment increased by 226,000.
Food services saw the next biggest gains in January (+31,000). The industry has added 255,000 jobs over the past 12 months, the biggest rise by sector.
Employment in healthcare continued to trend up in January (+21,000), while manufacturing saw a continued upward trend (+15,000), adding 186,000 jobs over the year.
The bureau also announced that the total nonfarm payroll employment for November was being revised down from +252,000 to +216,000, while the change for December was revised up from +148,000 to +160,000.
The net effect of the changes means employment gains were 24,000 less than previously reported.
The dollar climbed sharply following the data. The dollar index, a measure of the currency's strength against a basket of rivals, rose 0.79% to 89.38.
Against the euro, the dollar climbed 0.69% to $1.2426, and was up 1.1% against the pound at $1.4114.