Dollar gains after strong US jobs data stretches market hopes of Fed cut

By Chibuike Oguh

NEW YORK (Reuters) -The U.S. dollar rose against major currencies, including the yen, euro and Swiss franc on Thursday, after data showing the U.S. economy created more jobs than expected, signalling that the Federal Reserve might take longer to cut interest rates.

The dollar strengthened 0.94% to 145.075 versus the Japanese yen and was up 0.39% to 0.7955 against the Swiss franc. The U.S. currency is on track to notch a second consecutive session of gains against both safe-haven currencies.

The euro was 0.41% weaker at $1.175350. It is on track for the second straight day of losses.

U.S. Labor Department data on Thursday showed that nonfarm payrolls increased by 147,000 jobs in June. Economists polled by Reuters had forecast a rise of 110,000. The report was published a day early because of the July 4 U.S. Independence Day holiday.

"It will be very difficult for the Fed to cut rates in this environment, with the labor market so strong," said Axel Merk, president and chief investment officer at Merk Hard Currency Fund in California. "The argument that Jerome Powell has made for the Fed to stay on the sidelines continues to hold."

The dollar index, which measures the greenback against a basket of currencies including the yen and the euro, rose 0.40% to 97.135, on track for two straight sessions of gains, although it is still near multi-year lows.

The rise in the dollar following the data was accompanied by an increase in U.S. Treasury yields. The two-year note yield, which typically moves in step with interest rate expectations for the Federal Reserve, rose 9.7 basis points to 3.789%. The yield on benchmark U.S. 10-year notes rose 5.5 basis points to 4.348%.

Wall Street stock indexes gained, with the benchmark S&P 500 index and the Nasdaq hitting a fresh record high on the session.

"The US economy right now is on the roll to outperform through the rest of the year, that's why we're seeing such a strong response over the past three weeks in the equities," said Joseph Trevisani, senior analyst at FX Street. "The dollar has weakened about 13% against the euro since February. A lot of that has been driven by speculation that the Fed will sooner or later cut rates."

He said Thursday's economic report had put an end to those expectations.

Market expectations that the Fed will leave rates unchanged at its July meeting rose to a 95.3% probability, up from 76.2% a day ago, according to the CME's Fedwatch tool.

Republicans in the U.S. House of Representatives passed President Donald Trump's massive tax-cut and spending bill on Thursday, sending it to Trump to sign into law.

Treasury Secretary Scott Bessent said in a Bloomberg interview he expects a flurry of trade deals before the July 9 deadline, when the temporary pause of the so-called "Liberation Day" tariffs expires.

The U.S. has lifted restrictions on exports to China for chip design software developers and ethane producers, a sign of easing trade tensions between the countries. The dollar strengthened 0.14% to 7.17 versus the offshore Chinese yuan.

The British pound rose after losing ground in the previous session following a selloff in gilts. British Prime Minister Keir Starmer's office backed finance minister Rachel Reeves, easing concerns over her future. The pound strengthened 0.07% to $1.3646.

(Reporting by Chibuike Oguh in New York. Editing by Alex Richardson, Mark Potter and Sharon Singleton)

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