Despite Friday's disappointing U.S. jobs numbers, the dollar will continue to reign supreme assuming the Federal Reserve looks on course to raise rates before year-end, analysts say.
"We saw this last year, when U.S. first quarter gross domestic product (GDP) disappointed," DBS senior currency strategist Philip Wee told CNBC. "So, we had corrections in the dollar and the Dow (Jones Industrial Average), but the dollar went up very strongly in the second-half of (2014)".
Weaker-than-expected U.S. jobs data on Friday put a pause on the dollar's seemingly unstoppable rally. Non-farm payroll came in at 126,000 in March, sharply below expectations for a 245,000 increase in a Reuters poll and marking the lowest reading since December 2013. The data saw the U.S. dollar index drop 0.78 percent to 96.76 on Friday.
Expectations that the Federal Reserve will raise interest rates against the backdrop of policy easing at many central banks around the world have seen the greenback surge. The U.S. dollar index, which measures the dollar's value against a basket of currencies, has risen 21.2 percent since July.
"Jobs growth was not good, but wages did increase a bit and the unemployment rate was okay," NLI Research Institute's senior economist Tsuyoshi Ueno told CNBC by phone. "From next month onwards, the economy should bounce back from the cold weather and West coast port strikes."
Coast isn't clear yet
Downward revisions to jobs data for January and February showed the U.S. added fewer jobs than previously believed, exacerbating concerns about the economy.
"Some caution is setting in after Friday's non-farm payroll reports," NLI's Ueno said. The January and February figures that were underpinning the bullish outlook for the U.S. economy were too good to be true, he added.
But forward-looking forecasts for the U.S. economy are broadly upbeat: GDP growth is projected to accelerate from 2.2 percent in the fourth quarter to 2.4 percent the first-quarter and then 3 percent in the second and third quarters, according to the Thomson Reuters' economist forecasts.
"March's job numbers were disappointing, but you can't pass judgment on the health of the U.S. economy with just one month's data," Daiwacurrency strategist Yukio Ishizuki said over the phone.
Assuming the U.S. economy grows as expected, the dollar's rally should continue, analysts said.
Daiwa's Ishizuki sees the dollar index back to the 100 area, with yen at 125 and the euro at 1.1 against the dollar.
Unlikely but not impossible.
While unlikely, the risk that the economic data in the coming months are so bad the Fed is compelled not to raise rates cannot be completely ruled out.
"It's not clear yet whether Friday's job numbers can be entirely blamed on poor weather and the West Coast port strike, or whether there are other, more fundamental weaknesses to U.S. economic growth," said Daiwa's Ishizuki.
In the event the Fed does not raise rates this year, he sees the dollar falling to 118 yen and to 1.15 euro. NLI's Ueno reckons the dollar index could drop to around 90 if that happened, while the green back would slip to 115 against yen, although he expects the euro to be flirting with parity against the dollar.
Another potential risk is the effect that a stronger dollar has on the earnings of U.S. multinationals, analysts said.
"By the second quarter, the stronger dollar may be taking a large bite out of U.S. corporate earnings," said Daiwa's Ishizuki, "and that may provoke a backlash against the strong dollar."
The dollar index was trading at 96.75, and the dollar was quoted at 118.94 yen and 1.0984 at mid-afternoon Asia trading time.