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EUR/USD enjoys best day in a month, amid disappointing U.S. jobs data

Published 06/03/2016, 05:31 PM
Updated 06/03/2016, 05:38 PM
EUR/USD surged by nearly 2% on Friday to close above 1.13

EUR/USD surged by nearly 2% on Friday to close above 1.13

Investing.com -- EUR/USD enjoyed its strongest one-day move in more than a month, as the dollar erased three weeks worth of gains on Friday after disappointing U.S. jobs data likely pushed a June interest rate hike from the Federal Reserve off the table.

The currency pair traded in a tight range between 1.1137 and 1.1374 before settling at 1.1367, up 1.93% on the session. With the sharp gains, the euro closed above 1.13 against the dollar for the first time since May 17. Previously, the euro closed higher against its American counterpart in just seven of 23 sessions over the last month. Since opening the year at 1.08, the euro is up by nearly 5% against the dollar year to date.

EUR/USD likely gained support at 1.1055, the low from March 15 and was met with resistance at 1.1616, the high from May 3.

On Friday morning, the U.S. Department of Labor's Bureau of Labor Statistics (BLS) said nonfarm payrolls in May rose by 38,000, less than a quarter of analysts' expectations for monthly job gains of 158,000. It marked the slowest monthly job growth since September, 2010 and raises questions on the strength of the broader economy following a downwardly revised total of 123,000 in April. As a result, the three-month average which hovered near 200,000 early this spring, crashed to 116,000.

The losses were concentrated among the information sector, which fell by 34,000, reflecting the six-week strike involving Verizon union workers that was settled last week. The manufacturing industry remained weak, losing 10,000 positions on the month, while jobs in the construction sector fell by 15,000, one month after spending in the industry dipped by the largest amount in five years. In addition, jobs in the temporary help services category, a leading indicator of future job growth, fell by 21,000.

At the same time, the unemployment rate dropped by 0.2% to 4.7%, as an estimated 500,000 Americans left the workforce last month. The labor force participation rate inched down 0.2% to 62.6%, while average hourly wages rose by 0.2% on the month. The average work week held steady at 34.4 hours.

The Federal Open Market Committee (FOMC) has left the target range of its benchmark Federal Funds Rate unchanged at a range between 0.25 and 0.50% in each of its first three meetings this year. Last December, the FOMC abandoned a seven-year zero interest rate policy by raising interest rates for the first time in nearly a decade.

Shortly after the jobs release, Fed governor Lael Brainard called the results of the employment report "sobering," and warned her colleagues against moving too fast by approving a premature rate hike. Last Friday, Fed chair Janet Yellen sent strong indications that the FOMC could raise rates in the coming months barring an unexpected economic setback. The FOMC meets next on June 14-15, ahead of a controversial Brexit referendum on the U.K.'s status in the European Union.

"In this environment, prudent risk management implies there is a benefit to waiting for additional data to provide confidence that domestic activity has rebounded strongly and reassurance that near-term international events will not derail progress toward our goals," Brainard said in a speech before the Council of Foreign Relations in Washington.

Yellen could address the state of the U.S. labor market and its implications on the Fed's monetary policy decisions when she delivers a speech to the World Affairs Council of Philadelphia on Monday.

The U.S. Dollar Index, which measures the strength of the greenback versus a basket of six other major currencies, crashed more than 1.5% to a three-week low of 93.97. The index has tumbled more than 6% since early-December.

Yields on the U.S. 10-Year tumbled 11 basis points to an intraday-low of 1.697%, their lowest level in three weeks, before settling at 1.70%. Meanwhile, yields on the Germany 10-Year fell more than five basis points to an all-time record low of 0.068%.

Elsewhere, USD/JPY fell more than 2% to an intraday-low of 106.51, its lowest level in nearly a month. GBP/USD gained 0.73% to 1.4529, while USD/CAD fell 1.19% to 1.2942, suffering its worst one-day loss in nearly two months.

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