Dollar surges after Dec jobs growth beats forecasts

NEW YORK, Jan 5 (Reuters) - The dollar rallied on Friday after a surprisingly strong report on U.S. jobs growth in December led investors to scale back expectations for a Federal Reserve interest rates cut in the next six months. The euro plunged to a six-week low against the dollar after the Labor Department said the U.S. economy generated 167,000 new jobs in December, well above market expectations for a rise of 100,000. "It's positive no matter what way you look at it and is definitely bullish for the U.S. dollar," said Dustin Reid, foreign exchange strategist at ABN Amro in Chicago. "The private sector is firing on all cylinders here." Reid said he did not expect the Fed to cut interest rates from the present level of 5.25 percent any time soon, especially since the data also showed the largest rise in average hourly earnings in eight months.
Robust job growth, coupled with upward pressure on hourly wages, will likely keep the Fed concerned enough about inflation to leave its key interest rate on hold for at least several months to come, analysts said.
The euro dropped as low as $1.2981 on electronic trading platform EBS, the lowest since Nov. 24 and down more than 0.6 percent on the day. A break below $1.2980 would likely trigger a wave of automatic sell orders, adding momentum to the euro's decline, traders said. Meanwhile sterling fell as low as $1.9264, the lowest in more than six weeks. In a further sweetener to dollar bulls, the government also revised up its estimates of job growth in October and November, suggesting the labor market is proving more resilient than many economists had thought. "This data will force the market to further defer rate cut expectations well into H2," said Alan Ruskin, chief international strategist at RBS Greenwich Capital, in a note to clients. Implied chances of a cut in the fed funds rate by June fell sharply to 20 percent from 54 percent prior to the jobs data, according to the interest rate futures market.