Report for U.S. payrolls on Friday showed that in the last eight years the wages have been growing at the fastest pace ever, which has contributed to a rebound for the dollar. The dollar for the last three years has been stuck at a low international price.
According to Reuters, with equity markets falling and bond yields rising as traders built in higher inflationary expectations and speculated that central banks would raise interest rates more aggressively, dollar bulls hoped sentiment would shift, supporting the U.S. currency.
“Bond and equity market moves are finally translating into a dollar rebound, particularly against the high-beta currencies, this suggests that the dominant market paradigm (positive risk, weak dollar) is vulnerable to rising inflation expectations, yields and a potentially more hawkish Fed,” Credit Agricole analysts said.
The dollar index gained 0.6 percent on Friday against a basket of six major currencies, after it stood still at 89.175 for some time. When compared with the euro, the dollar stays at $1.2445, which is better than the three-year low of $1.2538 it reached last week.
Meanwhile, the dollar managed to get above the 110 Japanese yen mark after costing 110.485 yen on Friday. Previously, the dollar had a four-month low of 108.280 on January 26.
“Although stock market weakness is weighing on the dollar against the yen, the tide appears to have turned for the currency after the U.S. jobs report,” said the senior currency strategist at Daiwa Securities in Tokyo, Yukio Ishizuki.
“Speculators had gone excessively long on the yen, perhaps on misguided expectations towards Bank of Japan policy. But the U.S.-Japan yield differential is now too wide to be ignored,” Ishizuki added.
Reuters reported that with benchmark Treasury yields reaching four-year highs after the jobs report, the U.S.-Japan 10-year yield spread stretched to its widest since late 2007.