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    European Session – Dollar surges as payrolls strengthen Fed rate hike view

    The dollar surged across the board in reaction to the very upbeat US jobs data on Friday. Nonfarm payrolls for October far exceeded estimates and showed 271,000 jobs created in the US economy from 142,000 in September. Expectations were for 180,000 jobs to be added last month.

    The US unemployment rate also fell by 0.1 percentage point to 5.0%. This is the lowest level since 2008. Other good news was that average hourly earnings increased as well.

    The strong jobs report sent the dollar up as the market is now pricing in a December Fed rate hike. Fed Chair Janet Yellen and New York Fed President William Dudley said this week that the US was ready for higher interest rates if upcoming economic data justified them.

    The increasingly diverging policy paths of the ECB and Fed led to the euro crashing versus the greenback to fall below 1.08 to a six-month low of 1.0705 from a pre-NFP level of 1.0880.

    The single currency suffered against most major counterparts, even against the yen and sterling, because of the growing expectations of more QE by the ECB. After the NFP data, the euro dropped to 131.47 yen, while versus the pound it slid to 0.7110. A weak German industrial production number released early in the European session had little impact on the euro as the focus was on the US jobs data.

    An already declining pound extended lower versus the broadly firmer dollar after the jobs report to reach 1.5027, the lowest in six months. Sterling was sold through the release of mixed UK industrial production and trade data today as focus was on the US jobs data. The pound started weakening from Thursday after the Bank of England meeting, which led to the market adjusting its rate hike view for a later than a previously expected rise.

    The commodity currencies were also hit versus the US currency. The Australian dollar fell to a one-month low of 0.7048 from a pre-NFP 0.7150. The greenback rallied against the Canadian dollar to a month high of 1.3294 despite Canada also reporting much better-than-expected jobs data.

    Gold fell sharply to 1085.35 an ounce from 1108 while oil slipped to 44.55 a barrel.

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