Headline November increase in US payrolls was much lower than expected at 210,000 compared with consensus forecasts of 550,000.

The headline November increase in US payrolls was much lower than expected at 210,000 compared with consensus forecasts of 550,000.

The overall labour-market data was tight with a sharp drop in unemployment. Risk appetite deteriorated sharply later in the session as Omicron fears increased.

Long-term US yields declined sharply on the day despite Fed tightening expectations. Wall Street stocks reversed gains to post notable losses.

The dollar failed to hold gains on Friday, but did secure a net advance on Monday. EUR/USD recovered from lows, but traded below 1.1300. Sterling dipped amid a slide in risk appetite before stabilising on Monday.

The Canadian dollar posted sharp gains after strong domestic jobs data, but failed to hold the gains with a net USD/CAD advance. Commodity currencies overall posted net losses amid fragile risk appetite before a slight recovery on Monday.

The final Euro-zone PMI services index for November was revised down to 55.9 from the flash reading of 56.6. There was little impact ahead of the US jobs data.

US non-farm payrolls increased 210,000 for November after a revised 546,000 increase the previous month and well below consensus forecasts of around 550,000. Manufacturing and construction jobs both increased 31,000 on the month. There was a dip in retail employment on the month while there was a sharp slowdown in employment growth in the leisure sector with the increase held to 23,000 for the month and government jobs also registered a further monthly decline.

The unemployment rate declined sharply to 4.2% from 4.6% and below market expectations of 4.5%. According to the household survey, there was a very substantial increase of 1.13mn in the number of people employed with an increase in the participation rate.

Average hourly earnings increased 0.3% on the month with the annual increase unchanged at 4.8% and below consensus forecasts of 5.0%.

Although the increase in payrolls was below expectations, the report continued to indicate a strong labour market and the dollar reversed initial losses.

St Louis Fed President Bullard stated that the labour market was very tight and that the tapering process should be speeded up while he wanted live meetings soon to discuss rate hikes. The dollar still failed to hold its best levels despite hawkish Fed rhetoric and EUR/USD recovered to trade above 1.1300.

CFTC data recorded the largest long dollar position since June 2019, maintaining the potential for short covering if there is a shift in sentiment.

EUR/USD, however, retreated on Monday to near 1.1280 as US yields moved higher with markets continuing to monitor Omicron variants developments closely.

Short-term US bond yields increased following the jobs data, although longer-term yields declined slightly with the 10-year yield just below 1.45%.

The US ISM non-manufacturing index strengthened further to a record high of 69.1 for November from 66.7 the previous month and well above consensus forecasts of 64.8. There was a very strong increase in business activity with new orders also increasing at a strong rate while order backlogs also increased further. Employment also increased at stronger rate on the month while there was only a slight slowdown in the rate of increases in prices.

The dollar, however, was unable to sustain gains and USD/JPY dipped to around 122.80 at the New York close as the 10-year yield dipped sharply to near 1.35%.

There was further speculation that the Chinese central bank would cut reserve ratio requirements before the end of the year, but the yuan held firm on Monday. US yields recovered some ground as risk appetite stabilised and USD/JPY moved back to just above the 113.00 level with EUR/JPY around 127.50.

In comments on Friday, Bank of England MPC member Saunders reiterated that interest rates would need to increase over the medium term if economic developments met central bank expectations.

He was also not convinced that the economy should be allowed to run hot to increase the labour supply. Nevertheless, he also noted that an important consideration at the December meeting would be the potential economic impact of the Omicron variant. The comments increased speculation that Saunders would not press for an immediate rate hike and the bank overall would decide against raising rates at the December meeting.

Sterling edged lower following the comments and continued to lose ground during the day with a GBP/USD slide towards 1.3200 while GBP/EUR was also able to secure a net advance and settled close to 1.1770. Comments from Bank of England Deputy Governor Broadbent will be watched closely on Monday.

CFTC data recorded a further increase in short Sterling positions to close to 39,000 contracts from below 35,000 the previous week, the largest position since late October 2019 as Sterling sentiment remains weak. An improvement in risk appetite helped stabilise the UK currency on Monday with GBP/EUR around 1.1770 and GBP/USD near 1.3230.

Economic Calendar

07:00German Factory Orders (M/M)(OCT)-0.50%1.80%
09:30GBP PMI Construction(NOV)54.6
09:30Euro-Zone Sentix Investor Confidence(DEC)15.618.3
21:30AUD AiG Performance of Service Index(NOV)47.6
23:30JPY Current Account Total (Yen)(SEP)1.666B

*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.