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European Session – Nonfarm payrolls push euro below 1.14

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NFPFeb6

Currency markets were quiet ahead of the biggest data point of the month – the US nonfarm payrolls report (NFP). Most of the majors consolidated against the greenback, especially sterling. The euro was the exception as it was driven lower by some weak industrial data out of Germany and Spain. The aussie outperformed in response to the release of the Reserve Bank of Australia’s quarterly Statement on Monetary Policy.

The US jobs data beat forecasts in January, with huge upward revisions for December, fueling optimism for a Fed rate hike by the middle of this year.

The creation of 257,000 jobs last month followed a 329,000 gain in December that was upwardly revised from 240,000. Analysts predicted 234,000 jobs would be added to the US economy last month. The unemployment rate climbed to 5.7% from 5.6% but this was mainly due to an increase in the participation rate as more Americans entered the labour force. Meanwhile, the most positive news from the employment report today was the average hourly earnings, which jumped 0.5% from the prior month, the biggest gain since November 2008.

The dollar jumped across the board after the NFP numbers. Against the yen, the dollar surged to 118.92 from a pre-data low of 117.16.

The euro lost the 1.14 handle and dipped to 1.1334 from 1.1465 after the US data. The single currency had been weakening earlier in the day when the data out of Europe showed below-forecast industrial production numbers out of the Eurozone’s largest economy – Germany. December’s IP rose at 0.1% versus 0.4% expected but was an improvement from the 0.1% decline the prior month. The next focus with regards the euro will be on a special meeting of Eurozone finance ministers scheduled for February 11, ahead of the February 12 leaders’ summit. Greece is expected to be at the top of the agenda.

Sterling was trading sideways most of the day until the NFP release and showed little reaction to the publication of a wider – than – expected UK trade deficit. The shortfall in December was 10.2 bln pounds, which was about 10% larger – than – expected. After hitting a 1-month high of 1.5351, the pound fell following the NFP data to reach 1.5241.

The next big risk event for the pound will be the Bank of England GBP inflation report scheduled for February 12.

Finally, the aussie, which had outperformed the greenback since yesterday and rallied to 0.7875, fell to 0.7778 after the NFP data.

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