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Dollar stands tall on strong U.S. ADP job data, higher Treasury yields

3/9/2017, 10:19:42 AMMarket Analysis
Dollar stands tall on strong U.S. ADP job data, higher Treasury yields

TOKYO (Reuters) - The dollar held gains on Thursday as a stronger-than-expected U.S. private-sector jobs figures in February sealed expectations that the Federal Reserve will raise interest rates next week.

The dollar index, which measures the greenback against six major peers, was last up 0.1 percent at 102.12 (DXY), not far from a March 2 peak of 102.26, which was a level unseen since Jan. 11.

The ADP National Employment Report showed on Wednesday that private payrolls grew by 298,000 jobs last month, the largest increase since December 2015. The gain was well above economists' expectations for a 190,000 increase.

The ADP figures come ahead of the U.S. Labor Department's more comprehensive non-farm payrolls report on Friday, which includes both public and private-sector employment.

Traders now price in an 85.2-percent chance of a rate increase, according to Thomson Reuters data, up from 30 percent at the start of last week following hawkish comments from a string of Federal Reserve officials, including Chair Janet Yellen.

The strong gain in private-sector jobs pushed benchmark U.S. Treasury yields to their highest since December.

The 10-year U.S. Treasury note yield hit 2.583 percent (US10YT=RR), a level last seen on Dec. 20. It last stood at 2.563 percent.

The dollar was last up 0.1 percent at 114.47 yen . The greenback was helped by the widening U.S.-Japan interest rate differentials. It had risen as high as 114.75 yen on Wednesday, not far from a two-week high of 114.955 touched on Feb. 15.

However, investors were cautious ahead of Friday's non-farm payrolls as the ADP figures have proven a poor indicator for the awaited jobs report by the government, which is favored by the Fed.

"After a change in ADP's methodology in October, its figures have become closer to the government's data. So we could expect an upbeat figure on Friday," said Junya Tanase, chief currency strategist at JP Morgan Chase (NYSE:JPM) Bank.

"However, investors have already priced in February's strong job growth, so it is less likely that the U.S. Treasury yields jump once more and the dollar rallies unless the data is very strong," added Tanase.

The euro last stood at $1.0537 , wallowing near a one-week low of $1.0533.

Investors were also awaiting the conclusion of the European Central Bank's March meeting on Thursday. There is little expectation that ECB President Mario Draghi will announce changes to the bank's ultra-loose monetary policy despite rising inflationary pressures.