The US Senate approved the $1.9trn support package over the weekend which further boosted confidence in the growth outlook.

The US employment report was stronger than expected with a 379,000 increase in non-farm payrolls for February. Bond yields moved higher following the data as confidence in the global economy strengthened.

The dollar posted net gains to fresh 3-month highs on Friday. The US Senate approved the $1.9trn support package over the weekend which further boosted confidence in the growth outlook. Equities were unable to make further headway with Chinese bourses losing ground.

EUR/USD retreated to fresh 3-month lows below 1.1900. Sterling overall was unable to make headway with GBP/USD just above 1.3800. Commodity currencies pared losses as equites gained, but US dollar gains limited support.

German factory orders increased 1.4% for January after a 2.2% decline previously, although the Euro was unable to regain significant support ahead of the New York open. There were fresh concerns over the number of Italian coronavirus infections, especially with vaccinations still running at a low level.

US non-farm payrolls increased 379,000 for February which was well above consensus forecasts of 183,000 and there was also a substantial upward revision to the January figure to 166,000 from the original figure of 49,000. There was a surge of 465,000 in private payrolls for the month.

Manufacturing payrolls increased 21,000 following the decline for the previous month, but construction jobs dipped 61,000 on the month due to adverse weather conditions. There was a recovery of over 350,000 jobs in the leisure and hospitality sector.

The unemployment rate declined to a 10-month low of 6.2% from 6.3% previously. The participation rate was unchanged at 61.4% and the household survey recorded an increase in the number of employed of 208,000. Average hourly earnings increased 0.2% to give an unchanged annual increase of 5.3%. The data boosted confidence in the US labour market which also maintained confidence in the dollar. EUR/USD  dipped to fresh 3-month lows below 1.1900 before finding some relief.

CFTC data recorded a decline in long Euro, non-commercial positions to 126,000 contracts from 138,000 the previous week, but there will still be scope for a scaling back of long positions.

The Euro remained on the defensive on Monday with EUR/USD at 3-month lows below 1.1900 after a weak German industrial production figure reinforced expectations that growth and yield spreads would undermine the single currency and support the US dollar.

On Friday, there were media reports that the Chinese central bank had ordered banks to scale back lending to contain the risks of a financial bubble. US yields moved higher after the US jobs report. Markets remained uneasy over technical pressures in the bond market and US money markets which contributed to choppy trading.

USD/JPY spiked to 7-month highs around 108.65 following the release, but was unable to sustain the advance and quickly retreated amid pressure for a correction.

US equity markets also failed to sustain gains with further sharp selling in the Nasdaq index which also triggered an element of defensive yen demand. USD/JPY did, however, find strong support above 108.00 and rallied into the New York close as Wall Street equities posted strong gains.

On Saturday, the US Senate passed the $1.9trn fiscal stimulus Bill after a marathon session with some amendment. The centre-piece of the Bill is a $1,400 payment to most citizens which will boost short-term demand. The legislation should come into law this week with President Biden aiming for direct payments in two weeks. The dollar maintained a firm tone, although US futures moved lower and bond markets attempted to stabilise with USD/JPY just below 108.50.

The UK Halifax house-price index declined 0.1% for February with a decline in the annual increase to 5.2% from 5.4%. Sterling was unable to make headway ahead of the New York open and tended to drift lower amid pressure for a correction after sharp gains over the past few weeks with a GBP/USD dip to lows below 1.3800.

Bank of England MPC member Haskel stated that he remained open to the need to provide additional support to the economy and the bank must be ready to deploy all tools as needed. GBP/USD still rallied from lows to trade around 1.3840 as Wall Street equities advanced strongly with GBP/EUR ending little changed just above 1.1600. There was, however, some evidence that underlying momentum for the UK currency was fading.

CFTC data recorded an increase in long Sterling positions to 36,000 contracts in the latest week from 31,000 previously and the highest reading since April 2018. Positioning will maintain the risk of a sharp correction if confidence dips. Comments from Bank of England Governor Bailey will be watched closely on Monday.

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