The US dollar surged on Friday after a stronger-than-expected jobs report boosted expectations of a Federal Reserve rate hike next month. The Labor Department reported that US nonfarm payrolls increased by 165,000 jobs last month, far exceeding economists' estimates of 65,000. The unemployment rate also dipped to 4.1%, reinforcing the Fed's potential move. The US dollar index climbed 0.77% to 102.26, marking its largest daily gain in nearly five months, while the euro fell 0.67% to US$1.11437.
Market expectations for a December rate hike rebounded to 80% following the jobs data, up from 67% earlier in the week. The Nasdaq, however, suffered its biggest one-day drop in 19 months due to concerns over stricter AI regulations after the US midterm elections. Despite initial volatility, US stocks stabilized, with the Nasdaq rallying over 1% by the end of trading.
Treasury yields also rose, with the 10-year yield up 1.6 basis points to 4.85% and the two-year yield increasing 4.1 basis points to 4.52%. Fed officials, including John Williams and Alberto Musalem, emphasized the need to combat inflation, supporting the case for further rate hikes. Meanwhile, the British pound and Japanese yen weakened against the dollar, with the yen off nearly 0.6% on the week.
Analysts noted the shifting dynamics between safe-haven demand and interest-rate differentials influencing the dollar's movement. Eugene Epstein of Moneycorp suggested that as market volatility settles, correlations between these factors may become more rational.