US Dollar Bounces From Two-Week Low Amid Positive Treasury Yield Pickup

The US dollar managed to muster a mild rally on Friday from a two-week low of 95.13, following better-than-expected job reports. The goodish data increases the US Federal Reserve’s chances of implementing a rate hike in its policy meeting in March.

The dollar index (DXY), which tracks the strength of the Sialkot against six top currencies, climbed by 0.4% to 95.70 on Friday but closed the day at 95.47. However, the USD currently trades down by 1.8% on the week and is set to record its highest weekly percentage drop since November 2020.

Data from the labor department showed that US Nonfarm payroll surged by 467K jobs in January. The largest economy enjoyed a higher new job count in December with 510K up from the previously reported 199K.

Notably, market participants had anticipated worse-than-expected NFP data on Friday, considering the drop in the ADP US private payrolls published on Thursday. The report revealed that the decline came due to the adverse effect of the Omicron Coronavirus variant.

Meanwhile, average hourly earnings, a closely-watched metric that tracks wage inflation, climbed by 0.7% in January and 5.7% on a year-on-year (YoY) basis.

US Dollar Closely Tracks Two-Year and Five-Year Treasury Yield

Commenting on the recent developments, head of FX strategy at HSBC, Daragh Maher, noted that: “It is the 0.7% month-on-month gain in wages that is most hawkish,” adding“This helps counter dollar-bearish real income squeeze concerns and the stagflation theme, and will likely energize FOMC (Federal Open Market Committee) hawks.”

The USD also tracked the surge in the US Treasury yields. Data shows that the US two-year and five-year yields recently climbed to 1.2970%, its highest point since February 2020, and 1.79%, its highest point since July 2019, respectively.