US jobs data was significantly stronger than expected with a record monthly increase in non-farm payrolls.

US jobs data was significantly stronger than expected with a record monthly increase in non-farm payrolls. US new daily coronavirus cases increased to a record high around 55,000.

The mix of stronger than expected jobs data and underlying coronavirus fears triggered further uncertainty over the outlook and led to choppy trading. US equities posted gains, but failed to hold their best levels while Asian bourses posted modest gains.

The dollar recovered ground against European currencies with an element of defensive demand as EUR/USD dipped below 1.1250. Sterling retreated from its best levels, but secured net gains against Euro.

Commodity currencies held net gains with China’s PMI data underpinning confidence.

The Euro-zone unemployment rate increased to 7.4% for May from 7.3% previously, although this was below consensus forecasts of 7.7% which helped underpin the Euro. Narrow ranges prevailed ahead of the New York open ahead of the latest US jobs data with no major developments in the EU recovery fund.

US non-farm payrolls increased 4.80 million for June after a revised 2.70 million increase the previous month and above consensus forecasts of around 3.00 million. There was a further strong rebound in jobs within the leisure and hospitality sector with retail jobs also posting a strong recovery on the month.

The unemployment rate declined to 11.1% from 13.3% previously and below market expectations of 12.3% as workers returned from temporary lay-offs. There was, however, a further increase of close to 600,000 in the number of longer-term unemployed while average wages declined on the month as lower-paid workers returned to work. Initial jobless claims declined slightly to 1.43 million in the latest week from 1.48 million previously, although this was again above consensus forecasts for the week which maintained caution over the outlook. There were significant concerns that the labour-market recovery would stall as states are forced to suspend re-opening.

The dollar initially edged lower following the data as risk appetite strengthened, but it gradually regained ground amid reservations over the outlook and EUR/USD lost ground with a retreat to lows near 1.1220. US markets will be closed for the Independence Day holiday on Friday which is liable to narrow trading ranges. Coronavirus uncertainty will remain an important element with weaker confidence in fundamentals offset by possible defensive demand and EUR/USD was around 1.1240.

The dollar and yen were again trapped in relatively narrow ranges during the day. There was net US support from the jobs data and yields moved higher, but there was still an important element of caution over domestic coronavirus developments and Wall Street indices retreated from their best levels.

Florida reported a further sharp increase in daily new infections for the day and overall US new cases increased to a record high around 55,000 on the day.

There was a recovery in Japan’s PMI services index to 45.0 from 26.5 and above the flash reading of 42.3. China’s Caixin PMI services index increased strongly to 58.4 for June from 55.0 previously and above consensus forecasts of 53.2. This was the strongest reading since April 2010 with a sharp gain in business confidence, although there was a further decline in employment. The data overall helped underpin confidence in the Chinese and global outlook which underpinned risk.

There were still important reservations over US-China relations with the US Senate passing legislation to penalise banks doing business with China.

Asian equity markets made limited headway on Friday which helped underpin confidence, although US futures edged lower. Narrow ranges prevailed with USD/JPY settling around 107.50 as both currencies failed to make significant headway in cautious markets.

Sterling maintained a robust tone in early Europe on Thursday with a move above the 1.2500 level against the dollar as the firm tone in risk appetite helped underpin confidence. The latest round of face-to-face UK/EU trade talks was completed a day ahead of schedule with Friday’s planned meeting between EU Chief Negotiator Barnier and UK counterpart Frost cancelled. Both sides reported that little progress had been made with the usual areas of disagreement in evidence as Barnier again criticised the UK stance. Officials did, however, stated that the EU position was now understood better and Barnier repeated that agreement was possible.

UK consumer confidence recovered to -27 for the final June reading from the flash reading of -30 and slightly above consensus forecasts. There has been a decline in demand for Sterling puts in option markets which should help support the UK currency, although underlying sentiment is liable to remain fragile, especially with further concerns over weakness in the labour market. GBP/USD held steady around 1.2470 on Friday with pre-weekend positioning likely to be significant.

Economic Calendar

08:45Markit/ADACI Svcs PMI(JUN)26.528.9
08:50Markit Serv PMI(JUN)-50.3
08:55EUR German PMI Composite(JUN)-45.8
08:55EUR German PMI Services(JUN)-45.8
09:00Euro-Zone PMI Composite(JUN)-47.5
09:00Euro-Zone PMI Services(JUN-47.3
09:30GBP PMI Services(JUN)-47

*All rates shown are indicative of interbank rates and should only be used for indication purposes only. It is important to note that foreign exchange rates fluctuate and that rates may vary depending on the amount and the base currency that is purchased or sold. Rates are correct as of 8:00am UK time. CentralFX are not responsible for the rates shown.