The US dollar on Friday edged higher against a basket of currencies, after a better-than-expected US employment report pointed to a tight labor market that could lead the US Federal Reserve to go with interest rate hikes.

Nonfarm payrolls increased by 390,000 jobs last month, the US Department of Labor said in its closely watched employment report on Friday.

Economists polled by Reuters had forecast payrolls increasing by 325,000 jobs.

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The US Dollar Currency Index, which tracks the greenback against six other major currencies, was 0.34 percent higher at 102.17, gaining 0.49 percent from a week earlier.

The better-than-anticipated job gain is another sign the economy is still strong, while wage growth is beginning to moderate amid a rebound in the labor force, Capital Economics senior economist Michael Pearce wrote in a note.

“With wage growth still running well above rates that are consistent with the Fed’s 2 percent inflation target, however, that won’t stop the Fed from continuing to raise rates by 50 basis points at the next meeting or two,” Pearce wrote.

The Fed has raised interest rates by three quarters of a percentage point this year, and most Fed policymakers back increasing interest rates another half of a percentage point at each of their next two meetings.

Calling high inflation the US central bank’s “number one challenge,” Fed Vice Chairwoman Lael Brainard on Thursday said she backs at least a couple more half-percentage-point interest rate hikes, with more on tap if price pressures fail to ease.

Investors have mixed views on the greenback, which is still close to two-decade highs against a basket of peers.

George Saravelos, global head of forex research at Deutsche Bank, said the US dollar is “pricing a safe-haven risk premium that is so extreme it rarely has persisted over time and is now in the process of unwinding.”

Bullish analysts say that the Fed’s tightening cycle is based on a sturdier growth story than Europe’s, especially after the Russian oil embargo, which might hurt the eurozone economy.

As Taiwan celebrated the Dragon Boat Festival holiday on Friday, the New Taiwan dollar last closed down NT$0.118 at NT$29.388 against the greenback on Thursday, declining 0.13 percent from Friday last week.

The US dollar rose 0.5 percent to a more than three-week high of ￥130.46, with the Japanese currency not far from the two-decade low touched last month as the Bank of Japan (BOJ) stuck to its super-low interest rate policy stance.

BOJ Governor Haruhiko Kuroda — who has said the bank would not roll back its monetary stimulus as the recent rise in inflation was driven mostly by raw commodity costs and was likely temporary — on Friday said it was undesirable for prices to rise too much when household income growth remains weak.

Additional reporting by staff writer