(Updates prices; adds Treasury, stock market levels)
* December payrolls 199,000 vs 400,000 estimate
* Dollar on track for biggest drop in six weeks
* Pound nears two-month high vs dollar
By Chuck Mikolajczak
NEW YORK, Jan 7 (Reuters) - The dollar was on track for its
biggest daily percentage drop in six weeks on Friday on the
heels of the December U.S. jobs report that missed expectations,
but it was still seen as strong enough to keep the Federal
Reserve's tightening path intact.
The dollar index fell 0.546% at 95.734, and was
poised for its biggest drop since Nov. 26, when concerns about
the Omicron COVID-19 variant began to rattle markets. Even with
Friday's weakness, the dollar was still on track for a slight
weekly gain, its first in three weeks.
The Labor Department said nonfarm payrolls rose by 199,000
last month, well short of the 400,000 estimate. But analysts
noted underlying data in the report appeared sturdier, with the
unemployment rate falling to 3.9% against expectations of 4.1%
while earnings rose by 0.6%, indicating tightness in the labor
market.
The report also increased expectations the Fed will begin to
hike interest rates at its March meeting, with futures on the
federal funds rate implying a 90% chance of a hike, up from 80%
on Wednesday.
"While the headline might have fallen short of the
consensus, the consensus doesn't matter much to the Fed. For
them, this probably justifies their hawkish tilt," said Brian
Jacobsen, senior investment strategist at Allspring Global
Investments in Menomonee Falls, Wisconsin.
"We'll have to see how whether they walk the walk of their
hawkish talk, but the odds are rising for a rate hike in March
or May and a balance sheet run-off beginning later next year."
On Wall Street the benchmark S&P 500 SPX> was modestly
lower, while the yield on the benchmark 10-year U.S. Treasury
note touched 1.80%, its highest since January 2020.
The euro was up 0.62% to $1.1361 as it strengthened
against the greenback in the wake of the payrolls report, after
showing little reaction to data showing euro zone inflation rose
to 5% in December.
Euro zone policymakers have said they expect inflation to
gradually slow down in 2022 and a rate hike will likely not be
needed this year.
The Japanese yen strengthened 0.22% versus the greenback at
115.59 per dollar. The yen has taken the brunt of the damage
while the greenback has strengthened recently, with the dollar
hitting a five-year high versus the yen earlier this week.
Sterling was poised for its third straight weekly
gain against the dollar and was last trading at $1.3592, up
0.47% on the day, even after data showed growth in Britain's
construction sector cooled in December as the Omicron variant of
coronavirus spread, nearly matching a two-month high reached on
Wednesday.
Despite the rapid spread of the Omicron variant, investors
have increasingly viewed it as unlikely to derail the global
economy or more aggressive actions by central banks.
In cryptocurrencies, Bitcoin last fell 2.96% to
$41,822.60 after hitting a low of $40,600, its lowest since
Sept. 22. Ethereum last fell 6.27% to $3,194.51, on track
for a third straight daily decline, after touching its lowest
level since Oct 1.
(Reporting by Chuck Mikolajczak; Editing by Angus MacSwan and
Richard Chang)