EUR / USD
The final Eurozone PMI services index for November was revised down to 55.9 from the flash reading of 56.6. There was little impact ahead of the US jobs data.
US non-farm payrolls increased 210,000 for November after a revised 546,000 increase the previous month and well below consensus forecasts of around 550,000. Manufacturing and construction jobs both increased by 31,000 on the month. There was a dip in retail employment on the month while there was a sharp slowdown in employment growth in the leisure sector with the increase held to 23,000 for the month and government jobs also registered a further monthly decline.
The unemployment rate declined sharply to 4.2% from 4.6% and below market expectations of 4.5%. According to the household survey, there was a very substantial increase of 1.13mn in the number of people employed with an increase in the participation rate.
Average hourly earnings increased 0.3% on the month with the annual increase unchanged at 4.8% and below consensus forecasts of 5.0%.
Although the increase in payrolls was below expectations, the report continued to indicate a strong labour market and the dollar reversed initial losses.
St Louis Fed President Bullard stated that the labour market was very tight and that the tapering process should be speeded up while he wanted live meetings soon to discuss rate hikes. The dollar still failed to hold its best levels despite hawkish Fed rhetoric and the Euro recovered to trade above 1.1300.
CFTC data recorded the largest long dollar position since June 2019, maintaining the potential for short covering if there is a shift in sentiment.
The Euro, however, retreated on Monday to near 1.1280 as US yields moved higher with markets continuing to monitor Omicron variants developments closely.
Short-term US bond yields increased following the jobs data, although longer-term yields declined slightly with the 10-year yield just below 1.45%.
The US ISM non-manufacturing index strengthened further to a record high of 69.1 for November from 66.7 the previous month and well above consensus forecasts of 64.8. There was a very strong increase in business activity with new orders also increasing at a strong rate while order backlogs also increased further. Employment also increased at stronger rate on the month while there was only a slight slowdown in the rate of increases in prices.
The dollar, however, was unable to sustain gains and dipped to around 122.80 at the New York close as the 10-year yield dipped sharply to near 1.35%.
There was further speculation that the Chinese central bank would cut reserve ratio requirements before the end of the year, but the yuan held firm on Monday. US yields recovered some ground as risk appetite stabilised and the dollar moved back to just above the 113.00 level with the Euro around 127.50.
In comments on Friday, Bank of England MPC member Saunders reiterated that interest rates would need to increase over the medium-term if economic developments met central bank expectations. He was also not convinced that the economy should be allowed to run hot to increase the labour supply. Nevertheless, he also noted that an important consideration at the December meeting would be the potential economic impact of the Omicron variant. The comments increased speculation that Saunders would not press for an immediate rate hike and the bank overall would decide against raising rates at the December meeting.
Sterling edged lower following the comments and continued to lose ground during the day with a slide towards 1.3200 against the dollar while the Euro was also able to secure a net advance and settled close to 0.8550. Comments from Bank of England Deputy Governor Broadbent will be watched closely on Monday.
CFTC data recorded a further increase in short Sterling positions to close to 39,000 contracts from below 35,000 the previous week, the largest position since late October 2019 as Sterling sentiment remains weak. An improvement in risk appetite helped stabilise the UK currency on Monday with the Euro around 0.8530.
The Swiss franc maintained a strong tone during Friday with a further net advance as equities lost ground. The Euro posted fresh 6-year lows below the 1.0400 level while the dollar was unable to make any headway despite a wider advance and retreated to around 0.9175 after the European close.
Despite the sharp increase in Swiss coronavirus cases, the franc continued to gain net support as risk appetite deteriorated. In its latest report, the US Treasury did not label Switzerland a currency manipulator which curbed speculation that the National Bank would have to halt intervention to curb franc gains. The franc weakened on Monday with the dollar just above the 0.9200 level and the Euro around 1.0390 as a tentative recovery in risk appetite also limited franc support.