USD – The dollar is lower against most of its peers this morning as stock and commodity markets both edge higher on the back of strong labor market data.  Nonfarm payrolls registered in line with expectations, with the economy adding 114K jobs in September.  However, the last two months were both revised significantly higher, with an additional 86K jobs added in July and August.  The numbers were good enough to push the unemployment rate to 7.8%, down from 8.1% last month and nearly half of a percent better than the consensus forecast for 8.2%.  Today’s reading marks the first break below the key 8% level in more than three years in a strong sign that the economic recovery is gaining traction.  However, not to take away from the substantial progress, but much of the jobs added were part-time positions.  The underemployment rate remains exceptionally high at 14.7%, the same as last month.  Consequently, investors are seeking to add a bit of risk to their portfolios this morning as they look for higher yields than what the dollar offers.  Nevertheless, the dollar’s losses may be limited as technical indicators suggest that today’s move makes it oversold against a number of its major counterparts.

EUR – The euro extended its recent gains this morning after the jobs data out of the US supported a bit of risk taking.  Elsewhere, there is little new news out of the Eurozone after yesterday’s non-event of an ECB meeting. Apparently, policymakers didn’t even discuss a possible interest rate cut with the Bank clearly focusing on the OMT as the main policy tool they will look to use going forward.  However, with three consecutive quarters of economic stagnation or contraction, further action may be inevitable.  Meanwhile, German Chancellor Merkel is looking to put to rest the question of a Greek exit from the currency bloc with her first visit to Athens since the financial crisis erupted there three years ago.  However, with a string of recent public protests against austerity, the German Chancellor’s reception might be rather cold.  Merkel’s camp insists that they want to help Greece stabilize and remain within the Eurozone, and that the new ruling coalition has made much progress towards strengthening the Greek economy.  However, IMF Chief Christine Lagarde recently signaled that another writedown on Greek debt may be needed before long. 

GBP – Sterling is one of the few currencies to have fallen against the dollar this morning as the US jobs data saps demand for the relative safety of British government assets.  10-Yr Gilt yields climbed by the most in three weeks, pushing the GBP lower against the EUR for the sixth straight day.  With risk-off capital flows easing, the pound looks vulnerable as the British economy continues to underperform.

JPY – The yen consolidated overnight after the BoJ remained on hold.  However, the yen has strengthened vs. the EUR, snapping a six-day decline, as investors gauge that the yen has fallen too far and too fast.  Versus the dollar, movement has been muted by growing expectations that the new Japanese Finance Minister is growing restless with the exchange rate having been under the 80 handle now for nearly five months.

Commodity Currencies – The commodity linked currencies are mixed this morning with the CAD and MXN posting strong gains, while the ZAR continues to tumble.  The CAD is stronger this morning on the back of the jobs data out of the US – Canada’s primary trade partner – and as Canada added 42K more jobs in September than expected.  Similarly, the MXN jumped to a sixth-month high vs. the USD as the employment data will likely be supportive of Mexican exports.  The ZAR was the worst performer overnight, extending its five-day decline against the dollar to nearly 6% as labor unions strike, shutting down the country’s mining industry. The AUD also extended its recent declines as investors price in further rate cuts from RBA as the Australian economy looks to be cooling.

For more market reports go to Union Bank of California