Dollar posts strong gains.

US non-farm payrolls surged by 517,000 for January compared with expectations of an increase close to 190,000 while the December increases was revised higher to 260,000 from the original reading of 223,000.

According to the household survey, the unemployment rate edged lower to 3.4% from 3.5% while there was a small increase in the participation rate. The survey recorded a very strong increase in employment of close to 900,000, the second successive surge.

There was a strong increase of 1.2% in weekly hours for the month. There was a 0.3% monthly increase in average hourly earnings with the annual increase declining to 4.4% from a revised 4.8% previously, although this was slightly above market expectations of 4.3%.

The ISM non-manufacturing index strengthened to 55.2 for January from 49.2 the previous month and well above consensus forecasts of 50.4. There was a stronger rate of growth in business output and a surge in new orders for the month, but order backlogs remained subdued.

Employment was reported as unchanged for the month while there was only a small moderation in inflation pressures.

US Treasuries posted sharp losses following the much stronger than expected US jobs data with the 10-year yield jumping to above 3.50%.

Following the much stronger than expected payrolls data, there was a renewed adjustment in Fed Funds futures with fresh uncertainty whether the Fed would be able to back away from a hawkish policy stance.

The dollar posted strong gains as yields moved sharply higher with the dollar index at 2-week highs.

The dollar spiked higher at Monday’s Asian open following reports that Deputy Governor Amaniya had been approached to succeed current Governor Kuroda. Given that Amaniya was a key architect of current monetary policy, the rumours triggered sharp yen selling.

USD/JPY had already surged after the US data on Friday and spiked to near 132.50 before a significant correction as senior government officials denied the report.

Higher yields and fears over a more restrictive Fed policy stance triggered significant losses for Wall Street indices with global markets also hampered by US-China tensions.

The Australian Reserve Bank will announce its latest policy decision on Tuesday with consensus forecasts for a further 25 basis-point rate hike to 3.35%.

The decision and forward guidance will be important for the Australian dollar.

The Euro posted net gains into the US jobs data in anticipation of a subdued reading. The dollar, however, posted strong gains after the US jobs data with positioning amplifying the move. There were further gains after the US ISM data. EUR/USD posted sharp losses to below the 1.0800 level as the dollar posted strong gains. EUR/USD settled just below 1.0800 on Monday.

Higher US yields undermined the yen. USD/JPY surged to highs above 131.00 and held the gains on Friday. After the spike to near 132.50 on BoJ reports, there was a retreat to 131.70 in early Europe.

The Swiss franc dipped notably lower on Friday as US yields increased, but less confident risk conditions provided some protection. EUR/CHF strengthened to near parity with USD/CHF surging to 0.9260 before settling close to 0.9250.

Sterling was unable to gain any traction with slightly weaker global risk conditions and a lack of fundamental confidence. GBP/USD slipped sharply to lows around 1.2050 while EUR/GBP advanced to just above 0.8950 before stabilising on Monday.

Commodity currencies lost ground as the dollar strengthened and equities dipped sharply after the US data. AUD/USD slumped to 2-week lows just below 0.6900 before a recovery to 0.6940 on Monday. USD/CAD posted strong gains to 1.3425 and settled around 1.3400 with the Canadian currency resilient on the crosses.