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European Session – Nonfarm payrolls reinforce Fed rate hike outlook, oiI plunges on OPEC announcement

The US nonfarm payrolls report was the main focus of the markets today after the dust settled from yesterday’s big moves driven by the ECB.

The euro settled down after its biggest surge in six years versus the dollar following Thursday’s ECB disappointment. The central bank was not as aggressive as markets had expected and so the scale of the market’s reaction was quite big, with the euro rallying the most since 2009 to reach a high of 1.0980. Today the single currency dipped briefly to 1.0854 before regaining the 1.09 handle.

Further gains in the euro are expected to be limited due to Fed rate hike expectations, while ECB policy is poised to remain very accommodative well into 2017.

The US jobs data beat expectations in today’s report, which supports a Fed rate hike this month. The data will help reduce uncertainty regarding the Fed’s intentions.

According to the November payrolls report, the US economy created 211,000 jobs last month, down from October, which was revised up 27,000 to 298,000. Forecasts were for 200,000 jobs to be added in November. Average hourly earnings rose 0.2%. The unemployment rate held at 5% at a 7-1/2-year low.

The closely watched employment report came a day after Fed Chair Janet Yellen gave encouraging comments regarding the US economy during a testimony before the Joint Economic Committee, in Washington DC. Yellen mentioned how the economy had largely met the criteria that are more-or-less required for a rate hike. The FOMC meet on December 15-16. If the Fed makes a move then, it would be the Fed’s first rate hike since June 2006.

The dollar gained after the US jobs data to rise to 123.36 versus the yen from around 122.90 before the data. The greenback however trimmed some gains after an OPEC announcement. The organization said they are going to raise its oil output target from 30 million barrels a day to 31.5 million. Oil prices plunged below $40 after the report and dipped to $39.60.

In other news, Canada also released jobs data today. The November report showed the Canadian economy lost 35,700 jobs last month, which was worse than the 10,000 jobs expected to be lost. The unemployment rate rose to 7.1% from 7.0%, against forecasts for it to remain steady.

The initial reaction for the loonie was to weaken against the greenback but it reversed some losses. The USD/CAD pair rose to 1.3415 after the US and Canadian jobs data before dipping down to 1.3316 on the OPEC statement which resulted in broad-USD weakness.

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