Dollar up 2% versus yen after U.S. jobs report

The U.S. dollar on Friday rose to its highest level versus the Japanese yen since mid-June after the Labor Department said the U.S. economy lost 247,000 jobs in July, the fewest since August.

The dollar gained about 2.2% versus the yen. The Japanese currency has been the biggest loser when investors seek more risk in higher-yielding assets.

"The overwhelmingly optimistic report will fuel further gains in the U.S. dollar against the Japanese yen," said Kathy Lien, director of currency research at Global Forex Trading.

The dollar rose to buy 97.54 yen, compared with 95.59 in late North American trade on Thursday. The dollar is headed for a fourth weekly gain versus the yen, up from 95.19 yen last Friday.

The euro declined about 1.2% to $1.41.79, from $1.4342 Thursday. The move pared the dollar's weekly loss against the shared currency, which is still up from $1.4178 last Friday.

In another sign that investors sought risk, stocks rallied on Wall Street, with the S&P 500 Index /quotes/comstock/21z!i1:in\x (SPX 1,010, +13.40, +1.34%) rallying to its highest level since October. Treasurys fell, pushing benchmark 10-year note yields /quotes/comstock/31*!ust10y (UST10Y 3.86, +0.11, +2.88%) up near the highest levels this year. See Bond Report.

The dollar index /quotes/comstock/11j!i:dxy0 (DXY 78.98, +0.91, +1.17%) , a measure of the greenback against a trade-weighted basket of currencies, rose to 78.94 from 77.52 the previous day.

The dollar index is up for the first week in five, from 78.35 last Friday.

Jobless rate falls

The unemployment rate unexpectedly fell to 9.4% from 9.5% in June, attributed to people leaving the workforce. Economists surveyed by MarketWatch predicted payrolls would fall by 275,000 and saw a 9.7% unemployment rate. Also, payrolls were revised higher for May and June. See more on jobs data.

"Bottom line is the data is good in detail as well as headline, and revisions are in the right direction," said Marc Chandler, a currency strategist at Brown Brothers Harriman. "This will likely strengthen the green-shoots story."

Also fuelling the day's move, investors may have bought more low-yielding yen as a hedge to offset positions in riskier assets, said Sophia Drossos, co-head of global foreign-exchange strategy at Morgan Stanley.

"With the U.S. economy on more solid footing, investors may be scaling back on hedged and losing interest in the yen," she said.

The euro also rose 1% versus the yen.

Fed-funds futures

Interest-rate futures on Friday indicated a slightly higher chance that the Federal Reserve will raise its target overnight borrowing cost for banks, known as the federal-funds rate, as soon as the end of this year.

Federal-funds futures for December show traders are betting the rate will rise to 0.3 percentage point by December, from a current range of zero to 0.25 point. The Fed typically changes rates in 0.25-point increments. Still, that's up slightly from Thursday.

Futures for April show traders expect the benchmark rate to be about 0.75 percent by then. Most analysts and economists don't expect the Fed to lift rates until next summer.

"The market could be setting itself up for disappointment," Drossos said. Morgan Stanley predicts rate rises may begin next June.

Deborah Levine is a MarketWatch reporter, based in New York. William L. Watts in London contributed to this report.