By Jason Theodorou

The US labour market had shed 131,000 jobs in July, prompting fears that the country's economic recovery has run out of steam. The dollar fell after the Labour Department announced that non-farm jobs had seen a decrease, with temporary jobs to conduct the decennial census falling by 143,000.

Duncan Higgins, senior anaylst at Caxton FX, said: “At -131k, the figure is some way from forecasts particularly after the ADP numbers on Wednesday offered a level of optimism. It merely adds to the deteriorating economic picture in the US where the recovery is fast losing its momentum".

"Although the figures may have been skewed due to the effect of census hiring, there can be little doubt that the threat of a double-dip is increasing. There will now be increased speculation that the Fed at its meeting on August 10th may have to outline steps to extend monetary stimulus in order to safeguard the recovery.”

“The immediate impact saw both the pound and the euro jump by around 0.2% against the dollar. With sentiment toward the US currency tumbling, sterling could be set to test $1.60 in the early part of next week.”

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