The U.S. dollar rallied on Friday after data showed the world's largest economy created more jobs than expected last month, reinforcing expectations that the Federal Reserve will pause its rate-cutting cycle at its policy meeting later this month.

The greenback also extended gains following a report that showed U.S. consumer inflation expectations for the next year and beyond jumped in January.

The dollar rose to its highest since July against the yen after the data, before turning lower on the day. It was last down 0.1% at 157.845 yen .

The euro, on the other hand, dropped to its lowest since November 2022 versus the greenback. The single euro zone currency was last down 0.5% at $1.0244 , falling for a second straight week. A significant number of foreign exchange forecasters expect the euro to reach parity with the dollar in 2025, a Reuters poll showed this week.

The greenback's rally kicked off after a Labor Department report showed that the U.S. economy added 256,000 jobs in December, much higher than economists' forecasts for an increase of 160,000. The November jobs number, however, was revised downward to 212,000.

The unemployment rate, meanwhile, dipped to 4.1%, compared with expectations of a 4.2% reading, while average hourly earnings increased 0.3% last month after gaining 0.4% in November. In the 12 months through December, wages advanced 3.9% after rising 4.0% in November.

Trump, during his campaign, vowed to impose tariffs, cut taxes, and undertake mass deportation of undocumented immigrants, all of which are widely viewed as inflationary.

A University of Michigan's consumer sentiment survey indicating a rise in inflation expectations also supported the dollar.

The report showed that one-year inflation expectations jumped to 3.3% in January, the highest level since May, from 2.8% in December. That raised the 12-month inflation expectations above the 2.3%-3.0% range seen in the two years prior to the COVID-19 pandemic.

Following the U.S. data, the U.S. rate futures market has fully priced in a pause in the Fed's easing cycle at the January meeting, according to LSEG estimates. The market has also priced in just 27 basis points (bps) of easing in 2025 or just one rate cut, with the first rate move likely at the June meeting.

In other currencies, sterling tumbled to its weakest level since November 2023 against the dollar, last changing hands at $1.2208, down 0.8% . It dropped as well on Thursday in tandem with a selloff in gilts and concerns about British government finances.

In Japan, prospects of sustained wage gains and the boost to import costs from a weak yen have heightened attention within the central bank to rising inflationary pressures that may lead to an upgrade in its price forecast this month, sources said.

The dollar will end the week up 0.4% versus the yen. The U.S. currency has risen in five of the last six weeks against the Japanese unit.

The dollar index , meanwhile, advanced to its highest since November 2022, and was on track for a sixth consecutive weekly gain. That's its longest run since an 11-week streak in 2023. The index was last up 0.4% at 109.68.

Source : Reuters