Jobs news prompts talk of US rate hike

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The Independent Online

The Dollar surged against the yen, euro and 13 other major currencies yesterday after the US economy created more jobs than economists predicted, bolstering speculation that the Federal Reserve will raise its key interest rate next month.

It jumped more than a cent against the euro within a minute of the Labour Department report which showed the economy added 288,000 jobs in April. Job creation exceeded the highest forecast in a survey of economists by Bloomberg News, and compared with the 170,000 median estimate.

"This certainly pushes things forward for the Fed", Jan Faller, who manages international debt at Deutsche Asset Management in New York, said. "It makes the interest-rate differential argument even more compelling: you're owning dollars and you're going to get the better interest rate."

The Fed's benchmark interest rate has been at a four-decade low of 1 per cent for almost a year, and is half the figure of European Central Bank's key rate.

Eighteen of the 75 econo-mists polled about yesterday's data had predicted jobs gains of 200,000 or greater.

Robert Lynch, a currency strategist at BNP Paribas in New York, said: "The report raises the risk for an earlier Fed tightening and, to the extent that that leads to higher rates, it's positive for the dollar. The market is definitely moving closer to thinking about a June increase than it was before."

Some economists moved forward expectations for a rate boost after the report. JP Morgan Chaseis looking for a June rate increase, while Credit Suisse First Boston predicts an August rate increase.

The yen declined before the US report on concern that the Chinese government's efforts to slow economic growth and prevent an acceleration in inflation will curb demand for Japanese exports, said Toshi Honda, a currency strategist at Mizuho Corporate Bank in London.