Dollar firm after U.S. jobs data, as markets look to trade talks

On Monday, the USD held firm after the US jobs data showed surprising strength in the US jobs market. 

However, worries about the escalating trade war between China and the US restrained the currency from moving higher.

The dollar index stood almost flat at 97.706 in mid-Asian trade, after rising 0.3% on Friday. 

The euro traded at $1.10575, after hitting a one-week low of $1.10395 on Friday.

The dollar trades at 108.58 yen. It had lifted to 108.92 yen on the US data jobs data before losing momentum.

Last month, the US nonfarm payrolls increased by 266,000 jobs- the biggest gain in 10 months. The unemployment rate dropped to 3.5%-its lowest in nearly half the century.

The figures suggest the 17-month trade war between the US and China which has plunged the manufacturing sector into a recession, has not yet spilled over the broader US economy.

However, investors still think the data could change if trade tensions escalate and if Trump goes ahead to implement the planned tariffs on Chinese goods from Dec.15. 

US-China trade talks

Traders have been working on the assumption that tariffs that will cover various Chinese goods such as cellphones and toys will be dropped or postponed, given that China and the US agreed in October to work on a trade deal.

“Markets are sensing that both sides want to avoid a collapse of their negotiation, judging from various news headlines,” said Kazushige Kaida, chief of forex at State Street.

 “So the main scenario is for the dollar/yen to test mid-109 yen levels.”

On Friday, Larry Kudlow the top White House economic adviser conformed that the Dec. 15 deadline to impose new tariffs remained in place. However, he added that Trump liked where trade talks with China were going.

In November, China’s exports shrank for the fourth-month consecutive month, underscoring persistent pressures on manufacturers from the China-US trade war.

Brexit election

Elsewhere, the GBP traded at $ 1.3143, not far from a seven-month high of $1.3166 set on Thursday.

Against the euro, the GBP hit a 2-1/2-year high of 84.10 pence per euro.

Expectations that Prime Minister Boris Johnson’s Conservative Party will win the Thursday election bolstered the GBP. The win is expected to end the hung in parliament and the political paralysis on Brexit.

The Conservative Party extended its lead over the Labour Party to 14% points, up from 9% points a week ago. An opinion poll by Survation for ITV’s Good Morning Britain showed on Monday.

“Markets now think the Tories will win. But if they fail to win an outright majority, that means essentially nothing is different from now and will be a fairly big shock for the market,” said Minori Uchida, chief FX analyst at MUFG Bank.

The Canadian dollar traded at C$1.3255 to the U.S. unit. 

The loonie shed more than 0.5% on Friday following data showing the Canadian job market losing a surprise 71,200 net positions in November when economists had expected a gain of 10,000.