U.S. Non-Farm Payrolls Disappoint, Jobless Rate Unexpectedly Contracts

The breakdown of the report showed manufacturing payrolls increased 11K on the month, with service-based employment advancing 48K, while government jobs weakened 8K after falling 27K in December. At the same time, the gauge for average hourly earnings increased to an annualized pace of 2.5% from a revised 2.4% in the previous month, while the index of weekly hours tipped higher to 33.3 from 33.2. The data reinforces a weakened for private spending as households continue to face a deteriorating labor market paired with tightening credit conditions, and businesses may keep a lid on production and employment as policy makers see a risk for a protracted recovery.

Meanwhile, the Federal Reserve saw business spending “picking up” at its policy meeting in January even as they remained “reluctant” to expand their labor force, and the central bank maintained its pledge to keep borrowing costs at the record-low of an “extended” period of time as the central bank aims to encourage a sustainable recovery. However, as the economy emerges from the worst recession since the Great Depression, the FOMC has started to unwind its emergency measures, and the central bank may continue to normalize policy over the year as they maintain their mandate to balance the risks for growth and inflation.

We saw an initial dip in the EUR/USD following the dismal data as risk aversion continued to feed through the markets overnight, but the pair bounced back to maintain the daily range. The exchange rate is slightly lower at the moment, and we may see the reserve currency continue to hold its ground throughout the North American session as investors scale back their appetite for risk.