The dollar surged to a 13-year high against the yen as a report showed U.S. payrolls climbed in May, boosting the case for the Federal Reserve to raise interest rates this year.

The U.S. currency gained against most of its major peers after the jobs gain exceeded forecasts and worker pay gains accelerated. The Fed is likely to tighten monetary policy this year if the labor market improves further, William C. Dudley, president of the Federal Reserve Bank of New York, said in a speech in Minneapolis. Futures prices showed a better-than-50-percent chance the central bank will increase rates by its September meeting, according to Bloomberg data.

“The king-dollar trade remains on,” Matt Weller, an analyst at Gain Capital Holdings Inc.'s Forex.com unit in Grand Rapids, Michigan, said by phone. “This puts September right in the crosshairs in terms of a Fed rate hike. I'm still optimistic on the dollar.”

The dollar advanced 1 percent to 125.59 yen as of 1:57 p.m. in New York, after earlier reaching the highest level since June 2002. It added 1.1 percent to $1.1118 per euro, paring a weekly loss to 1.2 percent.

The Bloomberg Dollar Spot Index, which tracks the U.S. currency against 10 of its major peers, added 0.8 percent to 1,192.67.

The jobs report sent ripples through foreign-exchange trading desks.

“There's a lot of fist pumping, and swearing. It's kind of like it's a WWE wrestling match in here,” said David Bradley, Bank of Nova Scotia's director of foreign exchange trading in Tortonto. Curses, foot stomping, and phones smacking on the desk erupted on his Toronto trading floor after the data blew past economists' expectations.

Cheers were heard at Credit Suisse Group AG's office in New York after the data were released, Matt Derr, a foreign-exchange strategist at the bank, said in an email.

The dollar is up 5.4 percent this year, the second-best performer—after the Swiss franc—among 10 developed-nation peers, according to Bloomberg Correlation-Weighted Indexes. It's predicted to rise to $1.05 against the euro, while weakening to 125 yen in the fourth quarter, according to median forecasts of analysts surveyed by Bloomberg.

Jobs Report

Payrolls climbed 280,000 in May, the most in five months, showing companies were upbeat about the U.S. economy's prospects after an early-year slump. The unemployment rate rose to 5.5 percent as more people entered the labor force.

Average hourly earnings gained 0.3 percent from the prior month. They were up 2.3 percent from May 2014, exceeding the average gain since the economic expansion began six years ago.

Treasury yields jumped after the report, with 10-year note yields reaching the highest level since October. The U.S. yield is almost one percentage point higher than the average of the Group of Seven nations, according to data compiled by Bloomberg.

“If the labor market continues to improve and inflation expectations remain well-anchored, then I would expect—in the absence of some dark cloud gathering over the growth outlook—to support a decision to begin normalizing monetary policy later this year,” said Dudley, who has a permanent vote on the policy-setting Federal Open Market Committee.

ECB Moves

After rising for much of the year on the prospect of the Fed raising rates, the dollar fell this week as European Central Bank (ECB) President Mario Draghi stoked a surge in German bond yields by talking up the region's inflation prospects.

“If we start to see that the U.S. is raising rates,” the dollar will rise amid monetary easing elsewhere, Alfonso Esparza, a senior currency analyst at Oanda Corp. in Toronto, said in a telephone interview. The dollar is “appreciating across the board.”

Federal fund futures give a 54 percent probability that the central bank will lift rates in September, up from 46 percent before the data release, according to Bloomberg calculations. The probability of a December hike is 81.7 percent.

The U.S. central bank has kept its benchmark, the target for overnight loans between banks, in a range of zero to 0.25 percent since December 2008 to support the economy. It last raised the rate in 2006.

“This is a solid nonfarm payrolls report,” Shaun Osborne, head of global foreign-exchange strategy at Toronto-Dominion Bank, said by email. “It supports our base-case view of a September liftoff for the Fed and should be U.S. dollar-supportive.”

–With assistance from Rachel Evans, Liz Capo McCormick and Andrea Wong in New York, and Ari Altstedter in Toronto.

Instant Insights /

Dollar Hits 13-Year High Against Yen

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