February 5, 2016 / 12:21 AM / 2 years ago

Dollar gains after U.S. data suggests possible 2016 Fed rate hikes

A Benjamin Franklin U.S. 100-dollar banknote and a Chinese 100-yuan banknote depicting the late Chinese Chairman Mao Zedong, are seen in a picture illustration in Beijing, China, January 21, 2016. REUTERS/Jason Lee

NEW YORK (Reuters) - The U.S. dollar rebounded against a basket of major currencies on Friday after data showed a pickup in U.S. wages in January, suggesting greater inflation and denting the view that the Federal Reserve would not hike rates at all this year.

U.S. Labor Department data showed that average hourly earnings increased 12 cents, or 0.5 percent, last month, leaving the year-on-year gain in earnings at 2.5 percent.

The wage data was enough to drive the dollar higher even as non-farm payrolls increased by just 151,000 jobs last month, below the 190,000 that economists in a Reuters poll had expected. The unemployment rate was at 4.9 percent, the lowest since February 2008.

The dollar had plummeted in the past two sessions on the view that weak domestic economic data and worries over the global economy could prevent the Fed from hiking rates this year. Comments from New York Fed president William Dudley to MNI on Wednesday were viewed as dovish and had also hurt the dollar.

Friday’s data “could maybe bring in the timing of the next hike a little bit, but in order for that to shift more significantly, you would need to see stabilization and improvement in other data and some stabilization in the global outlook,” said Ian Gordon, FX strategist at Bank of America Merrill Lynch in New York.

The euro briefly hit a more than 15-week high against the dollar of $1.12500 EUR=EBS. The dollar hit a more than two-week low against the yen of 116.285 yen JPY=EBS immediately after the data but later reversed course to trade higher.

The dollar index, which measures the greenback against a basket of six major currencies, reached a session high of 97.236 after hitting a roughly 15-week low of 96.259 Thursday .DXY. The index was still set for its worst weekly percentage decline since October 2011.

The dollar also rebounded against the Swiss franc. It hit a session high of 0.99840 franc after briefly falling to a nearly four-week low of 0.98805 franc immediately after the data CHF=EBS.

“The pickup in average hourly earnings really gives something for the hawks on the Federal Reserve to point to and argue that wages are coming back,” said Chris Gaffney, president of EverBank World Markets in St. Louis.

Reporting by Sam Forgione; Editing by Lisa Von Ahn

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