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    European Session – Dollar bounces higher after strong NFP, earnings growth

    The US dollar saw some volatility after the release of stronger-than-expected non-farm payrolls data, which dragged US and European equities lower on Friday.

    Non-farm payrolls in the United States rose by 215k in March, slightly stronger than the expected figure of 205k but below February’s reading of 245k. The unemployment rate edged up to 5.0% despite the healthy jobs gain as the labor force participation rate increased to 63.0% from 62.9%, meaning that more Americans had entered the workforce.

    What upset the markets more though was the better-than-expected increase in average hourly earnings, which rose by 0.3% month-on-month in March. Expectations were for earnings to accelerate by 0.2%. But the annual rate was unchanged at 2.3% following an upward revision to the previous month’s figure. Faster wage growth would make it less likely for the Fed to put on hold further rate hikes. However, despite the improvement seen since late 2015, earnings have yet to show significant growth since the end of the financial crisis.

    Adding to the positive data today was the ISM manufacturing PMI. The index rose to 51.8 in March from 49.5 previously and was above expectations of 50.7. The data indicates the manufacturing sector in the US expanded for the first time since October 2015.

    The dollar had a mixed reaction to the jobs report as it spiked up immediately after the data to fall back again soon after before bouncing higher again. It had a more muted response against the yen though as it fluctuated in a narrow range. The US currency briefly hit a low of 111.81 yen before settling around 112.35 yen in late European session.

    The euro however declined sharply after the data, having steadily moved higher during the European session. The single currency had earlier been boosted by an upward revision to the final manufacturing PMI reading. The Eurozone manufacturing PMI was revised up from 51.4 to 51.6 for March, confounding expectations that it would stay unchanged. The euro hit a fresh 5-month high of 1.1437 before slipping to 1.1353 dollars in late European trading.

    Manufacturing PMI was also out in the UK and it improved slightly from 50.8 to 51.0 in March. However, the figure was below estimates of 51.2 and had little impact on the pound, which was hovering around 1.4350 dollars before tumbling from the US data. Sterling plunged by over 1% to below the 1.42 level. It was last trading at 1.4180 dollars.

    Also badly hit on Friday were commodity-linked currencies which had already come under pressure from weaker oil prices. US oil futures fell to around $37 a barrel, wiping out their yearly gains, after Saudi Arabia said it will only agree to a production freeze if Iran also signs up to the agreement. But given Iran’s unwillingness to agree to any freeze so soon after resuming its exports, an agreement on April 17 when major producers will meet to discuss a deal is looking less likely.

    The Australian and New Zealand dollar both saw sharp losses, declining to 0.7620 and 0.6852 respectively versus the US dollar in late European trading. The Canadian dollar was also under pressure as the greenback briefly topped the 1.31 level versus the loonie before easing to 1.3096.

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