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    European Session – Dollar stages post-NFP rally after quiet session

    Markets spent the day anticipating the all-important nonfarm payrolls report with limited movement across the major currencies. While the actual NFP figure is important, the average hourly earnings are equally important given the Fed’s focus on inflation.

    The headline payroll number for January showed a sharp slowdown in job creation in the US. Employers added 151,000 jobs at the start of the year, down from 262,000 in December. Most polls showed an expectation of 190,000 jobs.

    The dollar’s knee jerk reaction to this number was to drop sharply but then rebounded just as quickly when details of the report were digested and a few bright spots were found. Such was the unemployment rate which fell to 4.9% from 5%, despite forecasts for no change. The more favourable details were the average hourly earnings which came in stronger-than-expected at 0.5% month over month in January versus an expected 0.2% and up from December’s 0% change. Year over year, wages ticked up 2.5% versus expectations for a 2.2% increase.

    The pickup in average hourly earnings is likely to attract the Fed’s attention as rising wages helps inflation rise. Consequently, traders shifted their odds now to a possible rate hike in December. This helped the dollar rebound. From a dip to close to 116.00 yen, there was a bounce to 117.40. The yen is set for best week since 2009.

    The euro saw a brief spike above $1.1250 before dropping in the low $1.1100s. Sterling saw a similar moves against the dollar and ended up back below $1.4500. Oil suffered as well to lose the $32 a barrel handle, while gold, which has an inverse relationship to dollar, also fell and dropped below $1150 and ounce.

    The Canadian dollar, which had been outperforming the greenback all week, weakened sharply today. A disappointing Canadian employment report out today did not help. Canada’s unemployment rate rose to 7.2% from 7.1%. The USD/CAD pair rebounded from an eight-week low toady to rise back above $1.3800.

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