The U.S. dollar weakened against many of its main rivals on Friday, following a February jobs report that showed stronger jobs growth but weaker wage growth.
Meanwhile, the Japanese yen slumped after President Donald Trump accepted an invitation from North Korean leader Kim Jong Un, seen as easing tensions between the two nations.
Read: How the Trump-Kim meeting news moved markets
What are currencies doing?
The ICE U.S. Dollar Index DXY, -0.02% was down 0.1% at 90.121, set for a modest 0.2% weekly advance, that would mark a third straight week of gains for the index. The WSJ U.S. Dollar Index BUXX, -0.04% was down 0.1% at 83.81. On the week, this index gained 0.1%.
Read: Twin deficit is not the whole story behind dollar weakness, according to Pimco
The buck particularly climbed against the yen USDJPY, +0.56% buying ¥106.81 compared with ¥106.21 late Thursday in New York, after hitting a six-day high earlier. For the week, the dollar clawed back 1% against the yen, which had previously strengthened throughout February. The euro EURJPY, +0.50% also rose against the yen, climbing to ¥131.46 from ¥130.78 on Thursday.
Against the dollar, the euro EURUSD, -0.0487% fell to $1.2310, down from $1.2313 on Thursday, and down 0.1% on the week.
Also see: Here’s what Germany’s new finance minister could mean for the euro
The British pound GBPUSD, +0.2606% held on to modest gains at $1.3848, up slightly from $1.3812 on Thursday. Sterling gained 0.3% on the week.
Against the Canadian dollar USDCAD, -0.6745% the buck fell to C$1.2819, compared with C$1.2898, marking a five-day low. Canada’s currency benefited after President Trump announced that new steel and aluminum tariffs wouldn’t apply to Canada, which is the biggest exporter of those metals to the U.S., for now. On the week, the Canadian dollar rose 0.5%.
What is driving the market?
The previously muted dollar saw choppy trading following the jobs report—initially extending moderate gains before falling into negative territory—as traders and analysts digested the February data.
While the 313,000 jobs added in February exceeded forecasts, wage growth showed a slowdown versus previous data and the consensus forecast. Wage and consumer price inflation are among the key indicators the Federal Reserve uses to determine its monetary policy decisions, so weaker wage increases don’t bode well for the inflation and interest rate trajectory.
The Fed is expected to raise rates later this month in its first out of at least three anticipated hikes.
The Chicago Fed’s Charles Evans called the jobs report strong but that he would like to see stronger wage growth in an interview with CNBC following the release. Evans was set to deliver a speech to the Shadow Market Committee in New York at 12:45 p.m. Eastern.
Elsewhere, the news of a meeting between President Donald Trump and North Korean leader Kim Jong Un sparked a risk rally in Asia, which led safer assets, such as the Japanese yen, to decline in return.
Previously, the Bank of Japan left interest rates unchanged—as expected—and stuck with its assessment that the economy was expanding moderately. Japan has been on its longest growth spell since the 1980s now. Last week, BOJ Gov. Haruhiko Kuroda, who is set to embark on a second term in April, said Japanese inflation was moving toward the central bank’s 2% target, at which point it would make sense to reconsider its ultraloose monetary policy stance. The yen rallied on the remarks, but a stronger currency is problematic for Japanese equities NIK, +0.47% which have underperformed in the year-to-date already.
In the U.K., traders are watching Brexit developments after the EU gave an ultimatum to Prime Minister Theresa May’s government to freeze divorce negotiations until a solution for the Irish border issue was found.
What are strategists saying?
• “The headline [jobs] number was huge, but it’s wages that seem to matter,” said Luke Bartholomew, investment strategist at Aberdeen Standard Investments. “It seemed a bit like payback for the incredibly strong wage number last month.”
But putting the wage growth in perspective with the previous figure, also meant that “the Fed is going to have to think about revising its dots higher,” Bartholomew said.
Boston Fed President Eric Rosengren earlier said that he favored a slightly faster pace of interest rate hikes, compared to the three the Fed’s dot plot is currently forecasting.
• “Our bullish euro-yen call has received unexpected help from U.S. President Trump accepting an offer to meet North Korea leader Kim Jong Un and North Korea offering to suspend nuclear missile testing. ¥130.45 will now act as strong support,” said foreign exchange analysts at Morgan Stanley in a note.
What else happened?
Wholesale inventories rose by 0.8% in January, up from 0.4% before.