Official non-farm payroll data published this afternoon also showed average wages grew by 2.6 per cent on an annualised basis, the same rate in June, but ahead of expectations for a 2.3 per cent climb.
Economists thought the economy would add around 180,000 jobs, with not one of the 89 analysts polled by Bloomberg expecting the number to be so strong. The employment figures are a leading indicator of the strength of the US economy and the outlook for inflation. Given the Fed's dual mandate in these areas, more jobs and strong wage growth make an interest rate rise before the presidential election more likely.
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The dollar rocketed on the news, jumping from €0.8965 to €0.9016 and sending the pound down by more than one cent to $1.3040. US government yields also climbed and the price of gold fell by one per cent as soon as the data was released - all signs the market believes a rate rise has edged closer.
The stock markets also bounced after the figures helped the US economy put some disappointing GDP figures for the second quarter behind it. The Dow Jones opened 0.82 per cent up at 18,502 and the Nasdaq climbed a full one per cent at the opening bell.
The S&P 500, however, was the star performer, setting a new record high on the news, touching 2,176 points after a 0.6 per cent climb.
The US Labor Department also revised up its estimations for employment growth in June, saying it believes the number of jobs added to the US economy rose by 292,000 - bringing the total number of gains over June and July to 547,000.
Futures markets indicated the probability of a rate cut at the Fed's next meeting in December jumped from 18 per cent before the news to 26 per cent. The chance of a rise in any of the Fed's three meetings before the end of the year neared evens, jumping from 37 to 46 per cent.
Mike Read of trading platform Pelican said: "Janet Yellen will be delighted with July’s better than expected non-farm payroll result, as she looks for a run of positive data to support an intervention on rates in the coming months."
The monthly non-farm employment figures are one of the most hotly-anticipated indicators from the world's largest economy. A shock miss earlier this year, where employment gains came in well below expectations, rattled markets and killed off the prospect of the second interest rate rise since the recession back in June.
Paul Ashworth, chief US economist at Capital Economics said: "The better than expected increase in non-farm payrolls in July will renew speculation that the Fed might hike interest rates as soon as this September, but we still think Fed officials will want to see more evidence of a pick-up in GDP growth, which has been unusually muted for nearly a year now."