Risk appetite rebounds.

US ADP US non-farm payrolls increased 223,000 for December and slightly above consensus forecasts of 200,000 while the November increase was revised slightly lower to 256,000 from the original estimate of 256,000.

Manufacturing jobs increased 8,000 on the month and there were gains in most categories, although there was a dip in demand for temporary help.

The unemployment rate dipped to 3.5% from 3.6% and below expectations of 3.7%. There was a small increase in the participation rate while the household survey recorded a surge of over 700,000 in the number of people recorded as employed.

Average hourly earnings increased 0.3% with the annual increase slowing to 4.6% from 4.8%, the lowest reading since August 2021 and well below expectations of 5.0%.

The US ISM non-manufacturing index posted a sharp decline to 49.6 for December from 56.5 the previous month and substantially below consensus forecasts of 55.0. There was a sharp slowdown in business activity growth and the new orders component dipped sharply into contraction territory. Employment also edged lower on the month while supply-side stresses also eased.

There was a limited slowdown in inflation pressures with the prices index retreating to 67.6 from 70.0. Historically, this level for the headline ISM index would tend to suggest a slight contraction in overall GDP.

US Treasuries secured initial relief after the US wages data and then posted strong gains after the ISM services data with the 10-year yield sliding to near 3.56% on Monday.

Hopes for a soft landing in the US economy helped underpin risk appetite on Friday and a positive tone dominated on Monday with optimism over the Chinese outlook as coronavirus restrictions were removed further with border controls dropped.

Hopes for a Chinese rebound triggered a further advance in equities and commodities. The slide in US yields and unease over the potential for a hard landing in the US economy triggered sharp dollar losses.

Increased confidence in the Chinese and Euro-Zone outlook also curbed demand for the US currency.

The dollar index was close to 6-month lows after posting further losses on Monday.

The UK PMI construction index declined further to a 48.8 for December from 50.4 the previous month. This was below consensus forecasts of 49.6 and the weakest reading since May 2020. New orders also contracted and employment declined for the first time since January 2021 while there was a further net easing if inflation pressures.

Companies were pessimistic over the outlook with only the sixth negative reading on record.

The Canadian labour-market report recorded a strong 104,000 increase in December employment compared with expectations of close to 10,000. The unemployment rate also declined to 5.0% from 5.1% compared with expectations of 5.2%.

The Euro lost ground into Friday’s New York open with a EUR/USD retreat towards the 1.05 level. EUR/USD briefly dipped below 1.0500 after the US jobs data. The dollar posted sharp losses later in the session as yields posted sharp losses. EUR/USD surged to highs near 1.0650. The dollar posted further losses on Monday with EUR/USD advancing to 1.0680.

Lower yields triggered a wider slide in the dollar.

The surge in risk appetite also lessened potential demand for the US currency. USD/JPY slumped to lows below 131.50 before a limited recovery.

Stronger risk appetite undermined demand for the Swiss currency. EUR/CHF advanced to near 0.9880 while USD/CHF sliding to lows near 0.9250.

Weak construction data initially undermined Sterling before rallying strongly as risk appetite recovered. GBP/USD dipped sharply to lows below 1.1850 before a very strong recovery to near 1.2100. GBP/USD extended gains to above 1.2150 on Monday.

Commodity currencies rallied strongly on Friday after the US jobs data. AUD/USD surged to highs around 0.6890 from 0.6725 lows. The Canadian jobs data provided a further boost to the Canadian dollar. USD/CAD slumped to lows just below 1.3450.

Chinese re-opening hopes also boosted commodity currencies on Monday. AUD/USD posted 4-month highs around 0.6945. USD/CAD also retreated to 6-week lows below 1.3400 on Monday.