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Dollar gains after U.S. data suggests possible 2016 Fed rate hikes

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The U.S. dollar rebounded against a basket of major currencies on Friday after data showed a pickup in U.S. wages in January, suggesting greater inflation and denting the view that the Federal Reserve would not hike interest rates at all this year.

Average hourly earnings increased 12 cents, or 0.5 percent, last month, leaving the year-on-year gain in earnings at 2.5 percent, U.S. Labor Department data showed.

The wage data was enough to drive the dollar higher even though non-farm payrolls increased by just 151,000 jobs last month, below the 190,000 that economists in a Reuters poll had expected.

The dollar had plummeted in the past two sessions on the view that weak domestic economic data and worries over the global economy could prevent the Fed from hiking rates this year. Comments perceived as dovish from New York Fed president William Dudley to MNI on Wednesday had also hurt the dollar.

"The wage gains are good news in terms of inflation for the U.S.," said Andres Jaime Martinez, FX and rates strategist at Barclays in New York. He said that while the gains slightly raised market expectations for a rate hike this year, the Fed is still unlikely to hike rates at its next policy meeting in March.

The euro briefly hit a more than 15-week high against the dollar of $1.125 immediately after the data. The dollar also hit a more than two-week low against the yen of 116.285 yen before reversing course to trade higher.

The dollar index, which measures the greenback against a basket of six major currencies, reached a session high of 97.265 after hitting a roughly 15-week low of 96.259 Thursday. The index was still set for its worst weekly percentage decline since October 2011. The euro was set for its biggest weekly rise against the dollar since late April-early May.


The dollar also rebounded against the Swiss franc. It hit a session high of 0.9985 franc after briefly falling to a nearly four-week low of 0.98805 franc immediately after the data .

The weaker-than-expected non-farm payrolls figure limited the dollar's rally, said Eric Viloria, currency strategist at Wells Fargo Securities in New York.

The euro was last down 0.38 percent against the dollar, at $1.1151. The dollar was last up 0.13 percent against the yen, at 116.89 yen, but was down slightly against the Swiss franc at 0.9905 franc.

The dollar index was last down 0.05 percent at 96.98.