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NEW YORK (MarketWatch)—The ICE U.S. Dollar Index recorded its largest weekly gain in five weeks Friday after a blockbuster nonfarm payrolls number showed that U.S. economic growth has been even more robust than economists had believed.
The index DXY, +0.86% a measure of the greenback’s strength against a basket of six rivals, rose 1.237% on the week to 89.3000, its highest level since April 2006. This was its largest move since the week of Oct. 31, when it finished 1.380% higher.
The Labor Department said the U.S. economy added 321,000 jobs in November. It also revised its readings from September and October upward by 44,000 combined. Economists polled by MarketWatch had expected the U.S. economy to gain 235,000 jobs in November.
One of the most important details of the November report was the strong hourly wage growth. The Fed has repeatedly pointed to tepid wage growth as a sign of underlying weakness in the job market.
But the fact that hourly wages grew 0.4% in November means inflation may finally be rising in line with the Fed’s expectations, said Matt Weller, senior technical analyst at Forex.com.
And an increase in the Fed’s key interest rate may not be far behind.
“Throughout this year, the Fed has been generally satisfied with the absolute number of jobs created, but the missing ingredient in the recipe for a rate hike has been wage growth,” Weller said Friday in a research note.
“While it is only a one month sample, this much stronger rate of wage growth suggests the potential for demand-pull inflation, and an accompanying interest rate hike, in the first half of next year,” he added.
The dollar USDJPY, +1.38% also recorded its largest weekly gain against the yen in five weeks, finishing 2.317% higher at 121.4090 yen, a seven-year high. It traded at 119.7600 late Thursday.
The euro EURUSD, -0.77% finished the week down 1.285% at $1.2300, its largest drop in two weeks. It traded at $1.2380 Thursday.
