The US employment report overall was stronger than expected.

The US employment report overall was stronger than expected with payrolls increase of 531,000 and further decline in unemployment. The jobs data reinforced confidence in the US and global economy. US bond yields, however, declined sharply following the US data as underlying market inflation fears continued to ease slightly.

The dollar was unable to hold a brief spike higher to 12-month highs with a limited retreat later in the session as yields declined. EUR/USD recovered from 15-month lows just above 1.1500 to trade just above 1.1550. The yen recovered ground as US yields declined with the Swiss franc also holding firm. Sterling recovered from intra-day lows after hawkish comments from BoE Chief Economist Pill kept December rate hike expectations on the table. Commodity currencies recovered from intra-day lows on Friday as the dollar faded.

Narrow ranges inevitably prevailed ahead of Friday’s New York with the main focus on the US jobs data. The Euro was hampered by weaker than expected German industrial production data with a 1.1% decline for October and the increase in coronavirus cases in the country also maintained an element of unease.

US non-farm payrolls increased 531,000 for October, above expectations of around 450,000 while the September increase was revised higher to 312,000 from the original release of 194,000. Private payrolls increased 604,000 with a solid increase of 60,000 manufacturing jobs. There was an increase of over 35,000 in retail jobs with a strong increase of 164,000 jobs in the leisure and hospitality sector. Government jobs declined for the fourth successive month with a decline of over 70,000.

The unemployment rate declined to 4.6% from 4.8% and slightly below consensus forecasts of 4.7% while the household survey recorded an employment increase of over 350,000 with an unchanged participation rate. Average earnings increased 4.9% over the year from 4.6% previously and in line with market expectations which maintained expectations of a stronger rate of wages inflation which could increase underlying inflation pressures.

The strong overall report boosted the dollar immediately after the data and EUR/USD dipped to the lowest level since July 2020. The pair did, however, find support above the 1.1500 level and the US currency gradually lost ground later in the session. Overall, EUR/USD was able to rally to the 1.1570 area at the close.

The dollar traded below 12-month highs on Monday, but selling pressure was contained and EUR/USD traded around 1.1560.

US Treasuries failed to make a significant response to the stronger than expected US jobs data and there were strong gains later in the session with the 10-year yield sliding to 6-week lows near 1.45%. The decline in US yields was a key element undermining the US dollar and the yen overall was resilient. In this environment, USD/JPY retreated to lows near 113.30 towards the European close despite the strong payrolls data.

CFTC data recorded a further marginal increase in short yen positions to over 107,000 contracts and the largest short positon since December 2018 which will maintain the potential for a sharp squeeze, especially if US yields decline further. Overall risk conditions will also be watched closely in the short term.

Chinese trade data registered a record trade surplus and a stronger than expected annual increase in exports of 27.1%.

USD/JPY was able to hold above the 113.50 level, but unable to make significant headway as US yields remained lower with EUR/JPY around 131.30.

After a brief recovery, Sterling came under renewed selling pressure during the European session on Friday. GBP/USD dipped to 5-week lows around 1.3420 as underlying UK confidence remained fragile with a further unwinding of positions following Thursday’s decision not to raise interest rates.

Bank of England chief economist Pill stated that was some need for an increase in interest rates given the expected increase in inflation to 5%. He added that early evidence suggested that the end of the furlough scheme had not resulted in a significant increase in redundancies and that there were signs that the tight labour market was starting to put upward pressure on wages. He reiterated that there was recognition of the need for action cross the committee. Fellow MPC member Ramsden stated that he had voted for a rate hike because the labour market is tightening. In contrast, there were still more reserved comments from Tenreyro who stated that caution was needed and that the bank will have to rely on the data.

The comments from Pill provided an element of Sterling support and there was a GBP/USD rebound to near 1.3500 while GBP/EUR retreated to around 1.1636.

There were still concerns over the underlying Brexit tensions with reports that the UK would suspend parts of the Northern Ireland protocol.

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