Headline US employment data beat market expectations.

Risk appetite was mixed with Chinese equities making tentative gains after limited global losses on Friday. Headline US employment data beat market expectations, but warm weather played a part and the data overall was mixed.

The US currency maintained a firm tone and the dollar index pushed to 4-month highs amid a lack of confidence in other majors with EUR/USD below 1.10950. AUD/USD dipped to 10-year lows amid fears over the coronavirus impact before a slight correction.

The Canadian dollar was supported by firm labour-market data, but USD/CAD held firm just below 1.3300. The Norwegian krone strengthened after stronger than expected inflation data.

The Euro was hampered by weak industrial production data ahead of Friday’s New York open with the sharpest monthly decline in output for 10 years. There were also fears that damage to China’s economy would undermine German exports.

US non-farm payrolls increased 225,000 for January compared with consensus forecasts of around 160,000 while there was a slight upward revision to 147,000 for December. As expected, there was a sharp increase in construction jobs due to mild weather while manufacturing jobs dipped 12,000.

Unemployment increased to 3.6% from 3.5% as the participation rate increased while the number of people employed in the household survey declined by close to 100,000. Average hourly earnings increased 0.2% compared with expectations of 0.3% with the year-on-year increase at 3.1% from 3.0%.

The data overall was mixed with seasonal distortions and some reservations over the underlying components. From the Federal Reserve’s perspective, there will be no pressure to change interest rates in the short term with Chair Powell testifying in Congress this week. The Federal Reserve semi-annual report stated that inflation continued to run below the 2.0% target.

Although the dollar corrected slightly following the jobs data, losses were limited, and it posted fresh 4-month highs later in the session as commodity currencies were subjected to fresh selling. The Euro remained firmly on the defensive and EUR/USD dipped to 4-month lows below 1.0950 before a marginal rally on Monday as commodity currencies also rallied slightly.

Chinese trade data for January was delayed with the January and February data set to be released together next month. There was further speculation that the Japanese pension fund was intervening to curb volatility and reassure market participants.

USD/JPY was unable to break above the 110.00 level as labour-market data provided no sustained support and risk appetite deteriorated during New York trading with the 10-year yield declining to below 1.60% as equities moved lower. In this environment, the USD/JPY retreated to near 109.50 before recovering slightly. Latest CFTC data recorded a decline in short yen positions to 21,000 contracts from 36,000 previously, but with scope for position liquidation if coronavirus fears intensify.

Asian equities overall edged lower on Monday, but the yuan made a slight net gain to trade stronger than 7.00 against the dollar and the re-opening of some key Chinese factories helped underpin sentiment amid hopes that China was having some success in curbing the virus. There was still an important element of caution with USD/JPY trading around 109.80.

The Halifax house-price index recorded a 0.4% increase for January with the year-on-year increase at 4.1% from 4.0% previously with little net Sterling impact. There were further underlying concerns over UK trade developments, especially with concerns that the UK government decision to allow partial Huawei access to the 5G network could undermine the potential for a US-UK trade deal.

French officials also stated that they were looking to quickly shift Euro clearing from London to the Euro-zone. With a more defensive risk tone, Sterling lost ground as GBP/USD dipped to 3-month lows just below 1.2900 and failed to make any headway against the vulnerable Euro with a GBP/EUR close around 1.1780.

CFTC data recorded a small decline in net long Sterling positions, but the overall positioning will limit scope for currency gains. Strong gains for Sinn Fein in the Irish General Election could also cause fresh complications over EU negotiations with the UK. Overall, Sterling initially corrected slightly on Monday, but then dipped again with GBP/USD just below 1.2900.

Economic Calendar