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Does Strong Jobs Data Equal Further Rate Hikes?

This article was originally published on ETFTrends.com.

U.S. markets strengthened as the latest monthly jobs data revealed the economy is humming along.

Government data revealed the U.S. economy added 223,000 new jobs in May, with the average hourly earnings up 0.3% after rising 0.1% in April, both exceeding estimates. In contrast, economists showed average forecasts of 188,000 jobs and a 0.2% rise in wages, Reuters reports.

Related: Did Trump’s Jobs Tweet Break the Law?

"The Fed has been focused on wage inflation forever. The thing that could affect the Fed is a bad print related to wages. This is a pretty good print," Michael Schumacher, director of rate strategy at Wells Fargo, told CNBC. "The economy looks solid and I'd say has been looking good for a long time. The missing link has been wages and as wages pick up, it makes the Fed look at it and say this is what we want."

Unemployment 18-Year Low

The jobs data also showed the unemployment rate fell to an 18-year low of 3.8%, signalling a rapidly tightening labor market conditions.

“It’s a good report all around. It literally checks off all the right boxes,” Tom Porcelli, chief U.S. economist, RBC Capital Markets, told Reuters. “The Fed didn’t need a report nearly this strong for them to have continued on course, a report like this is sort of icing on the cake.”

The upbeat jobs numbers helped strengthen U.S. markets Friday, with the SPDR S&P 500 ETF (NYSEARCA: SPY) and iShares Core S&P 500 ETF (NYSEARCA: IVV) , two of the most popularly traded ETFs on the market, up about 1.0%.

Additionally, the PowerShares DB U.S. Dollar Index Bullish Fund (UUP) tracks the price movement of the U.S. dollar against a basket of currencies, added 0.2% Friday as the U.S. Dollar Index (DXY) rose 0.2% to 94.174.

The strong nonfarm payroll numbers fueled speculation that the Federal Reserve could hike rates faster in the months ahead, which helped bolster the U.S. dollar as higher rates make the USD more attractive to yield-seeking investors around the world.

However, some warned of the recent run-up in the U.S. dollar this year.

“The dollar’s a little cooked” after its big rally, Mark McCormick, head of North American FX strategy at TD Securities, told the Wall Street Journal. “If you get this geopolitical action coming into the market, a lot of recent gains may reverse.”

Fed funds futures rose slightly after the jobs report. The Fed is expected to announce its second rate hike this year after its June 13 meeting.

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