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European Session – Dollar see saws on mixed NFP report, euro rebounds above 1.10

The nonfarm payrolls report was the highlight of the day and markets were subdued during most of the European session in anticipation of this big event.

The February jobs report showed a total number of 242,000 new jobs were added to the US economy, which was an increase from January’s upwardly revised 172,000. While this headline number was initially good news and the markets reacted positively, giving a lift to the dollar, the details of the report were mixed.

One of the biggest disappointments in the data was wage growth. Average hourly earnings fell 0.1% on a month-on-month basis versus expectations for a 0.2% rise and down from January’s 0.5% gain.

The mixed nature of this report now makes it unlikely that the Federal Reserve will act to raise rates at its March 16 FOMC meeting. Jobs growth is not enough to sway them if wage growth is cooling. The Fed would prefer to see more inflationary pressures that would translate to higher wage growth. Overall, the earlier optimism for four rate hikes this year has faded drastically to only one hike in 2016.

There was an interesting reaction to the US jobs data in the currency markets. The dollar surged immediately after the NFP data, jumping to 114.20 yen. It also rallied against the euro and sterling but the moves all reversed soon after investors digested the details of the data. The dollar fell back below 114 yen and the euro broke above the key $1.10 level after a brief dip to the $1.08 handle. The euro is set to end the week higher versus the dollar after recent sharp falls due to expectations of more ECB easing next week.

Even sterling, which was mostly trading weaker against the greenback during the European session, and approached $1.41, eventually moved higher to $1.4235, the strongest level since February 22. The pound too is set to end the week higher versus the dollar after a strong recovery this week from sharp losses recently due to Brexit fears.

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