FOREX-US dollar bounces back as strong jobs data backs Fed rate-cut pause

Adds analyst comment, details of jobs data, bullets, byline, FX table; updates prices

By Gertrude Chavez-Dreyfuss

NEW YORK, Jan 10 (Reuters) - The U.S. dollar rallied across the board 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 dollar rose to its highest since July against the yen after the data and was last up 0.1% at 158.27 yen JPY=EBS. The U.S. currency has risen in five of the last six weeks.

The euro, on the other hand, dropped to its lowest since November 2022 versus the greenback. The single euro zone currency was last down 0.6% at $1.024 EUR=EBS, 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.

A Labor Department report showed 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 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.

"I think this will only encourage a continuation of the U.S. dollar upside that has been the market's bias for a while, certainly serves to reinforce the U.S. exceptionalism theme, and should keep the Fed relatively hawkish compared to peers in the G10 space," said Michael Brown, senior research strategist, at Pepperstone in London.

Following the nonfarm payrolls number, 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 31 basis points 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, and last changed hands at $1.2247, down 0.5% GBP=D3. It was sold off as well on Thursday in tandem with a selloff in gilt and concern 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 index =USD, 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 0.2% at 109.48.

(Reporting by Gertrude Chavez-Dreyfuss; Additional reporting by Saqib Iqbal Ahmed and Greta Rosen Fondahn in Gdansk; Editing by Christina Fincher)

((gertrude.chavez@thomsonreuters.com; 646-301-4124))