The greenback made the gains despite another record high in oil prices and a trio of reports showing a sluggish jobs market.

"The U.S. dollar has a renewed spring in its step, but it has not yet been dismissed from the intensive care unit," David Watt, senior currency strategist at RBC Capital Markets, wrote in a note to clients.

The U.S. dollar was a big beneficiary of comments suggesting the European Central Bank may be finished hiking interest rates following a quarter-point increase on Thursday, Watt said.

Markets had been anticipating further rate hikes later in the year but ECB President Jean-Claude Trichet said, "the current rate stance will contribute to achieving our price stability objective" and "starting today, I have no bias."

The major piece of economic data ahead of the U.S. long weekend was nonfarm payrolls. The consensus estimate was for a 60k decline but markets were priced in for worse after troubling surveys of private and manufacturing payrolls. When the U.S. Bureau of Labor Statistics announced a near-consensus -62k, stock markets rallied in relief and the U.S. dollar climbed.

Moments later, Trichet began his press conference and the greenback took off. It was able to maintain its strength despite a rise in initial jobless claims to a three-month high of 404k and a fall in the employment component of the ISM non-manufacturing index to a record low.

Late in the session, the U.S. dollar was up 0.80 to 106.72 against the yen and the Dollar Index was up 0.686 to 72.715.

The Canadian dollar was down 0.0058 to 0.9822 against the U.S. dollar (1.0182 USD/CAD) and up 0.20 to 104.80 against the yen.

The euro was down 0.0178 to 1.5705 against the U.S. dollar, down 0.0091 to 1.5989 against the Canadian dollar, down 0.0053 to 0.7917 against the pound sterling and was lower by 0.62 to 167.59 against the yen.

The pound sterling was down 0.0095 to 1.9835 against the U.S. dollar and up 0.0018 to 2.0195 against the Canadian dollar.

U.S. equity markets mostly finished the day in positive territory. The Dow Jones industrial average was up 73 points to 11289, the S&P 500 up 1 point to 1263 and the Nasdaq down 6 points to 2245.

Toronto's S&P/TSX composite index was down by more than 200 points in early trading but rebounded to close up 109 points to 14144.

European stock markets closed in positive territory with the Eurostoxx up 33 points to 2874, the UK FTSE 100 up 50 points to 5477 and the German DAX up 48 points to 6354.

The German fixed income market was most active on the day. Returns on two-year German bonds were down 18.8 bps to 4.45%, with five-year yields down 15.0 bps to 4.53%, 10-year yields down 9.7 bps to 4.56% and 30-year yields down 5.1 bps to 4.80%.

U.S. two-year yields were down 5.0 bps to 2.52%, with five-year yields down 2.1 bps to 3.28%, 10-year yields up 1.8 bps to 3.97% and 30-year yields up 3.2 bps to 4.53%. The Eurodollar September 08 contract is up 0.5 ticks to 97.08. The yield curve is steeper, with the 10/2-year spread up 6.6 bps to 144.48 bps.

Yields on UK two-year bonds were down 10.5 bps to 5.06%, with five-year yields down 10.0 bps to 5.03%, 10-year yields down 9.0 bps to 5.04% and 30-year yields down 4.3 bps to 4.65%.

Canadian fixed income traded in a relatively tight range. Yields on two-year Canadian government bonds were down 2.2 bps to 3.21%, with five-year yields down 1.0 bp to 3.45%, 10-year yields down 0.9 bp to 3.74% and 30-year yields down 0.6 bp to 4.07%.

At the Montreal Exchange, trading dropped off sharply in the afternoon after an active morning. Volumes in 10-year CGB futures were normal while BAX trading was 29% below the 10-day average. BAX prices were up 1-2 ticks across the strip as interest rate markets continue to price out central bank rate hikes.

The December contract is pricing a 60% chance of a Bank of Canada hike by year-end. At the upcoming meeting, overnight index swaps imply only an 8% chance of a hike with the remainder expecting steady rates.

The day ahead is expected to be quiet and illiquid because of the U.S. Independence Day holiday. Canadian markets will be open with the Ivey PMI as the only significant data point.

All data taken at 4:54 p.m.

By Adam Button, This email address is being protected from spam bots, you need Javascript enabled to view it , edited by Stephen Huebl, This email address is being protected from spam bots, you need Javascript enabled to view it

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