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European Session – Dollar weakens despite nonfarm payrolls gain, earnings growth disappoint

Markets in general rebounded slightly today, driven by gains from Chinese stocks, after China set a firmer yuan midpoint rate and suspended its market circuit breaker. This helped stabilize markets and brought a little more confidence back.

In terms of economic news out of Europe today, German industrial output fell in November. Instead of rising 0.5% as forecast, it fell 0.3%. Meanwhile, Germany reported a 20.6 billion euro trade surplus in November, though imports rose more than exports, up by 1.6%. Exports rose 0.4%.

The euro lost upside momentum after the disappointing German industrial production figures and fell back down to the $1.08 handle against the dollar. It soon rebounded after the US jobs report though.

In other news, the UK November trade deficit narrowed, though less than expected and this brought renewed pressure on sterling which fell to $1.4550, close to Thursday’s 5-year low. Risk for the pound lies with next week’s Bank of England policy decision.

The market focus today was mainly on the all-important US nonfarm payrolls report which showed 292,000 jobs created in December, beating estimates of 200,000. The unemployment rate held at 5%, a 7 1/2-year low. Meanwhile the October and November job growth was revised up by 50,000.

The initial market reaction was positive and the dollar spiked up against the yen to 118.82 from 118.31. But the upside move soon faded as a closer look at the data was taken and the dollar dipped back below 118 yen. There was a disappointment in the wage growth number which did not improve as much as expected. Average hourly earnings did not change in December from November, and grew 2.5% year-on-year versus expectations for a 2.7% pace.

Overall the NFP report was solid and will not likely alter the case for the Federal Reserve to raise interest rates further this year.

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