The US dollar experienced a surge on Friday following the release of January’s employment report. Although job growth slowed, the unemployment rate dipped to 4.0%, potentially allowing the Federal Reserve to postpone interest rate cuts until June. President Trump’s announcement of reciprocal tariffs on unspecified countries further bolstered the dollar’s value.
The US dollar index, tracking the currency against major peers like the yen and sterling, saw a 0.353% increase, reaching 108.04. Despite this daily gain, the index was poised for a weekly decline due to easing concerns over a global trade war.
January’s nonfarm payrolls report revealed a 143,000 job increase, significantly lower than December’s upwardly revised 307,000 and below economists’ expectations of 170,000.
“The trend in nonfarm payrolls remains unclear,” noted Joseph Trevisani, senior analyst at FX Street. “We haven’t observed a consistent decline or strengthening, suggesting this report is unlikely to significantly impact market movement.”
President Trump’s pledge to impose further tariffs, potentially addressing US budget concerns, reignited trade war anxieties. This announcement came during a meeting with Japanese Prime Minister Shigeru Ishiba, with auto tariffs remaining a possibility despite potential exemptions.
The British pound weakened against the dollar, trading at $1.2413, a 0.2% decrease. This followed Thursday’s 0.54% drop after the Bank of England (BoE) reduced interest rates to 4.5% and projected a mere 0.75% UK economic growth this year. While the pound initially fell 1.1% post-decision, it partially recovered after BoE Governor Andrew Bailey cautioned against overinterpreting some policymakers’ votes for deeper rate cuts. The euro also declined by 0.49%, settling at 1.0333.
Meanwhile, the dollar depreciated by 0.09% against the yen, reaching 151.365. Earlier in Asian trading, it dipped below 151 yen for the first time since December 10th, driven by speculation of greater-than-anticipated Bank of Japan (BOJ) rate hikes this year following recent wage data. Hawkish comments from BOJ board member Naoki Tamura, advocating for a rate increase to at least 1% by late fiscal 2025, further fueled these expectations. According to Mizuho’s Yamamoto, Tamura’s hawkish stance decreases the likelihood of the BOJ delaying a rate hike until September.
The Trump administration’s early days have been characterized by volatility. This week witnessed the last-minute suspension of planned tariffs against Mexico and Canada, countered by a 10% levy increase on Chinese imports, prompting retaliatory measures from China.
Finally, US Treasury Secretary Scott Bessent’s commitment to containing 10-year Treasury note yields suggests a potential shift in the Fed’s relationship with the administration. Bessent clarified that while President Trump desires lower interest rates, he won’t directly request Fed rate cuts, emphasizing their joint focus on the 10-year Treasury yield. This statement may indicate a less direct influence of the administration on the Federal Reserve’s monetary policy decisions.
