(Updated at 1959 GMT)
The dollar rose on Friday after new data showed U.S. job growth accelerated in November and the unemployment rate dropped, pointing to underlying strength in the labor market.
The U.S. dollar index =USD was last up 0.3% at 104.0, on track for a modest weekly gain after a bruising November, in which it shed 3%. The yen JPY=EBS was 0.52% lower against the dollar at 144.35, following its biggest rally in almost a year the day before.
U.S. nonfarm payrolls added 199,000 jobs last month, the Labor Department's Bureau of Labor Statistics said on Friday. Economists polled by Reuters had forecast 180,000 jobs created.
The employment report, which showed the unemployment rate fell to 3.7%, suggested that financial market expectations that the U.S. Federal Reserve could pivot to cutting interest rates as soon as the first quarter of 2024 were premature.
"So far, there’s nothing in the data that forces (the Fed) off their ‘let’s see what happens’ stance. The market was clearly leaning in the other direction," said Steven Englander, head of global G10 FX research at Standard Chartered Bank in New York.
Traders of short-term U.S. interest-rate futures on Friday pared bets the Fed will start cutting interest rates in March after the report, and now see a May start to rate cuts more likely.
Markets had earlier priced in about a 60% chance of a March start to Fed rate cuts but, after the readout, pared that to just under 50%.
"In the short term, the U.S. rates market has just gotten, I think, way too dovish on the Fed," said Stephen Miran, co-founder of Amberwave Partners. "The massive ease in financial conditions since the start of November basically means that the Fed doesn't need to cut to throw fuel on that fire."
YEN ENTHUSIASM Although the yen was lower after the readout of the U.S. November jobs data, it surged by as much as 1.2% earlier on, adding to Thursday's 2% rally after Bank of Japan (BOJ) Governor Kazuo Ueda gave the clearest steer yet that the central bank is considering when to wrap up its negative rates policy. It was headed for its fourth weekly gain against the dollar on Friday.
The Japanese currency has vaulted to multi-month highs against a range of others in the last two days, although some of that strength dissipated over Friday's European trading session.
Thursday's rally was the largest one-day jump for the yen since January. But without more impetus from the BOJ, it may not have much more scope for outsized gains.
"I think it’s pretty clear the BOJ is where other central banks were in late 2021. The case for having the lowest real interest rates in the world ... is not very strong at this point. But the question is, how long do they want to prepare the market?" said Englander.
The yen has fared best against higher-yielding currencies, such as the pound. Sterling fell to a two-month low against the yen GBPJPY=EBS on Friday, but last recovered to rise 0.66% to 181.88.
Elsewhere, the euro EUR=EBS fell 0.31% to $1.07585, while the pound GBP=D3 dropped 0.38% to $1.255, and was set for a weekly decline.
The Australian dollar AUD=D3 fell 0.32% to $0.65795, while the Chinese yuan CNH=D3 weakened 0.27% to 7.1877 against the dollar in offshore trading.
Data on Thursday showed China's exports grew for the first time in six months in November, while imports shrank.
In cryptocurrencies, bitcoin BTC=BTSP last rose 1.58% to 43,981, hovering near its highest since April 2022.
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