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

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

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

The dollar advanced 1 percent to 125.59 yen as of 1:57 p.m. inNew York, after earlier reaching the highest level since June 2002.It added 1.1 percent to $1.1118 per euro, paring a weekly loss to1.2 percent.

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

The jobs report sent ripples through foreign-exchange tradingdesks.

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

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

The dollar is up 5.4 percent this year, the second-bestperformer—after the Swiss franc—among 10 developed-nation peers,according to Bloomberg Correlation-Weighted Indexes. It's predictedto rise to $1.05 against the euro, while weakening to 125 yen inthe fourth quarter, according to median forecasts of analystssurveyed 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 prospectsafter an early-year slump. The unemployment rate rose to 5.5percent 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 gainsince the economic expansion began six years ago.

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

“If the labor market continues to improve and inflationexpectations remain well-anchored, then I would expect—in theabsence of some dark cloud gathering over the growth outlook—tosupport a decision to begin normalizing monetary policy later thisyear,” said Dudley, who has a permanent vote on the policy-settingFederal Open Market Committee.

ECB Moves

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

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

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

The U.S. central bank has kept its benchmark, the target forovernight loans between banks, in a range of zero to 0.25 percentsince December 2008 to support the economy. It last raised the ratein 2006.

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

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

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