(Updates prices, adds analyst quote in paragraph 6, adds paragraph 12 on Fitch keeping U.S. credit rating on negative watch)
By Hannah Lang
WASHINGTON (Reuters) - The U.S. dollar rose on Friday after May's non-farm payrolls report showed employment numbers surged, while traders weighed the merits of the U.S. Federal Reserve possibly skipping a rate hike in June.
The report showed that payrolls in the public and private sector increased by 339,000 in May, far outstripping the 190,000 forecast on average by economists polled by Reuters. May's jump followed a 253,000 rise in April.
Despite strong hiring, the unemployment rate rose to 3.7% from a 53-year low of 3.4% in April.
The dollar index =USD, which measures the U.S. currency against six others, was last up 0.435% at 103.980, on track for its largest daily percentage gain since mid-May. On the week, however, the dollar slipped 0.2%, its biggest weekly decline since early May.
The dollar index slid 0.62% on Thursday, its worst day in almost a month, after Fed officials signaled the central bank will forgo an interest rate hike this month.
"The Fed has painted themselves into a corner with these most recent statements about the need to take a pause, and then maybe look to hike in July, and I think they're going to regret it after today's non-farm payroll number," said Paresh Upadhyaya, director of fixed income and currency strategy at Amundi US.
Money markets are pricing in a roughly 29% chance of a June hike, down from near 70% earlier in the week. FEDWATCH
Philadelphia Fed President Patrick Harker said on Thursday it was "time to at least hit the stop button for one meeting and see how it goes."
A day earlier, Fed Governor Philip Jefferson said skipping a rate hike "would allow the committee to see more data before making decisions about the extent of additional policy firming."
"The challenge is that we've entered the Fed's blackout period ahead of the (Federal Open Market Committee) meeting, which means it's going to be hard to see a pushback from officials or any guidance from officials after this employment report," said Marc Chandler, chief market strategist at Bannockburn Global Forex.
The U.S. Senate's passage of a bill Thursday night to suspend the debt ceiling and avert a disastrous default removed a pillar of support for the dollar, which had paradoxically been a key beneficiary of the uncertainty because of its safe-haven status.
On Friday, Fitch Ratings said the United States' "AAA" credit rating will remain on negative watch, despite the debt limit agreement, citing repeated political standoffs and last-minute suspensions of the ceiling before the deadline.
The dollar climbed 0.8% against the yen this week, on track for its largest weekly percentage rise since mid-May.
Sterling rose 0.8% against the dollar, on pace for the biggest weekly gain since late April.
The euro EUR=EBS was last down 0.45% to $1.07135, off its highest in around a week after a boost on Thursday from European Central Bank President Christine Lagarde, who said further policy tightening was necessary.
The Australian dollar AUD=D4 surged after Australia's independent wage-setting body announced that it would raise the minimum wage by 5.75% from July 1. The Aussie rose by as much as 0.93% to $0.663, its strongest since May 24, and was last up 0.59% versus the greenback at $0.661.
Currency bid prices at 3:03PM (1903 GMT)
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