Strong US payrolls, US unemployment rate edges higher.

US non-farm payrolls increased 311,000 for February compared with consensus forecasts of around 200,000 and there was only a small downward revision for January to 504,000 from the original reading of 517,000. There was a small decline in manufacturing jobs for the month and a net decline in transport and warehousing employment, but there were further strong gains in retail and leisure. The government sector also posted a further 46,000 increase.

According to the household survey, the unemployment rate increased to 3.6% from 3.4% and above expectations of 3.4% with the increase in employment held to 144,000 amid a slight increase in the participation rate.

Average hourly earnings increased 0.2% compared with expectations of 0.3%, although the annual increase was 4.6% from 4.4% previously.

The Silicon Valley Bank (SVB) developments remained a key element with California regulators shutting the bank down on Friday. New York Signature Bank was also shut down over the weekend.

The collapse increased fears over contagion in the financial sector and triggered a sharp decline in risk appetite with heavy losses in equities, especially given the high value of uninsured deposits.

Over the weekend, the US Treasury and Federal Reserve announced that all deposits in SVB would be protected. The move triggered a strong rebound in risk appetite with a recovery in equities.

At Monday’s European open, the government also announced that SVB UK would be sold to HSBC which eased the UK contagion risks.

Given increased fears over the financial sector, there were fresh doubts that Federal Reserve would be able to raise interest rates more aggressively. The chances of a 50 basis-point rate hike this month were cut to just below 30% on Friday and were then priced out completely on Monday.

The US 2-year Treasury yields also collapsed to below 4.40% from 5.00% last week.

The slide in bond yields, shift in Fed expectations and a rebound in risk appetite triggered sharp dollar losses. The dollar index overall dipped to 2-week lows on Monday.

Canadian employment increased 21,800 for February after a 150,000 increase the previous month and above expectations of 10,000. Unemployment held at 5.0% and below expectations of 5.1%.

The Federal Reserve will hold a closed-door meeting on Monday to discuss the banking situation.

The US consumer prices data will be released on Tuesday and the data will also be important for underlying expectations surrounding Federal Reserve policies. The dollar posted limited losses after the US employment report. Stresses in the financial sector had a larger impact with the shift in Fed expectations undermining the US currency. The dollar was also undermined by lower yields. A slide in equities provided only limited defensive US support. EUR/USD jumped to highs at 1.0700 before a retreat to 1.0650. The dollar dipped again on Monday amid a further shift in Fed expectations. EUR/USD posted further gains to 2-week highs near 1.0730 on Monday.

There was very choppy yen trading as lower US yields undermined dollar support. USD/JPY slumped to lows near 133.50 before a recovery to around 134.50.

The Swiss franc secured further notable defensive support amid US financial fears. EUR/CHF dipped to lows just below 0.9800 before a recovery to 0.9835 on Monday.  USD/CHF posted sharp losses to 14-week lows near 0.9150.

There was further Sterling volatility in shifts in risk conditions, but the currency was again broadly resilient. GBP/USD jumped to 1.2100 on Friday before losing ground again and posted further gains to 1.2140 on Monday as the dollar dipped before settling around 1.2100.

Commodity currencies secured support from a weaker US dollar on Friday, but were also hurt by risk vulnerability. AUD/USD settled below 0.6600 on Friday. The jump in risk conditions triggered strong AUD/USD gains to 0.6670 on Monday. USD/CAD consolidated around 1.3800 on Friday with a limited impact from the jobs data. USD/CAD dipped to 1.3740 on Monday.