(Bloomberg) —

The dollar weakened against the yen as a jobs report bolstered speculation that U.S. policy makers will proceed cautiously on plans to raise interest rates.

The greenback initially rose against most of its major peers after Labor Department data showed U.S. employers added more workers than projected last month and wages strengthened. The Bloomberg Dollar Spot Index, which tracks the greenback versus 10 peers, was little changed, even as futures show an increased likelihood of Federal Reserve rate increases later this year.

The dollar index tumbled 3.9 percent last month, the most in more than five years, after the Fed pared projections for rate hikes at its March meeting and Chair Janet Yellen said the central bank will “proceed cautiously” due to heightened risks in the global economy. Strong gains in the U.S. labor market and nascent signs of inflation are bolstering the argument for higher borrowing costs, muddying the outlook for both the central bank and currency traders.

“The modest upside surprise to the March U.S. employment report probably does more to stop the recent bleeding in the dollar than do anything major to reverse its course,” Mark McCormick, North American head of foreign-exchange strategy at Toronto-Dominion Bank, said in an e-mail. “The generally reassuring set of numbers are not likely to alter the foreign-exchange market’s view of the Fed’s new policy reaction function, but it also helps draw a line under recent weakness.”

The dollar fell 0.7 percent to 111.81 yen as of 2:08 p.m. in New York. The greenback lost 0.1 percent to $1.1389, reaching the weakest level since October.

Jobs Support

Payrolls increased by 215,000 in March, the report showed, exceeding the median forecast of analysts compiled by Bloomberg for a 205,000 gain. Average hourly earnings rose, while the jobless rate crept up to 5 percent as more people entered the labor force.

U.S. policy makers have forecast two interest-rate increases this year, after lifting their target rate by 0.25 percentage point in December, ending seven years of near zero borrowing costs. While traders boosted bets on the Fed hiking in 2016 after the report, contracts still only show a 61 percent likelihood of an increase by year-end.

“It’s a good number, but it’s not enough to push the Fed to do anything anytime soon,” said Sharon Stark, a fixed-income strategist at D.A. Davidson & Co., a broker-dealer in St. Petersburg, Florida. “I don’t think there’s much upside for the dollar.”

–With assistance from Andrea Wong and Lananh Nguyen To contact the reporters on this story: Taylor Hall in New York at thall88@bloomberg.net, Rachel Evans in New York at revans43@bloomberg.net. To contact the editors responsible for this story: Boris Korby at bkorby1@bloomberg.net, Paul Cox, Mark Tannenbaum

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