Despite the lack of yield support, optimism that the Fed can trigger a recovery will provide near-term dollar protection

The latest non-farm labour market report recorded a drop of 17,000 in January from a revised increase of 82,000 the previous month. There were further monthly declines for manufacturing and construction jobs while there was also a drop in government employment. This was the first net employment drop for over four years, although some caution is required as the last time there was a government fall, the data was revised up the following month. The unemployment rate fell to 4.9% from 5.0% while the average earnings increase was held to 0.2%.

The ISM index for the manufacturing sector rose back above the 50.7 level from 48.4 the previous month and there was a strong reading for prices. Other components were less favourable, but the data will ease fears over manufacturing to some extent. Construction spending fell by a larger than expected 1.1% for the month as the residential sector continued to contract.

The data overall will maintain uncertainty over the US economy and will provide some support for both the bullish and bearish interpretations of US trends. At this stage, the evidence of recession is not convincing, but dollar yield support is weak.