The number of jobs added to US non-farm payrolls in January soared to 227,000, but disappointing wage growth made investors bet against a near-term interest rate rise from the Federal Reserve.
Unemployment rose slightly to 4.8 per cent, according to the US Bureau for Labor Statistics, while average earnings grew by only 0.1 per cent.
Economists expected a rise of 175,000 jobs during the last month, according to a Reuters survey, but the measure instead jumped to its highest point since July, after disappointing last month.
The dollar gave up most of the day's gains after the figures in volatile trading as investors weighed the likelihood of an interest rate rise. The yield on the US 10-year Treasury, which moves inversely to prices, fell by almost six basis points as a rate rise was seen as less likely.
The non-farms data comes after a more timely but less complete indicator, the ADP payrolls, showed private sector job increases well above consensus expectations.
Payrolls data is a vital indicator of the health of the economy for policymakers. The US Federal Reserve is mandated with keeping employment as high as possible while also balancing inflation.
Kully Samra, Charles Schwab UK managing director, said: “Today’s jobs numbers coupled with most other economic data points this week demonstrate the ongoing resilience and strength of the US economy."
The election of Donald Trump as US President promises to change the central bank’s calculation. He was elected on a platform promising an apparent mix of strident fiscal expansion with millions of new jobs at a time when the US economy is nearing full employment. This would likely boost inflation.
James Athey, senior investment manager at Aberdeen Asset Management, said: “This is just what the doves at the Fed wanted to see. All of the numbers point towards it being more difficult to justify another hike in March. Even the headline employment number won’t help.
"It shows more people are in employment which you might interpret as increasing the likelihood of a hike," he said. "But at this stage in the economic cycle you’d expect the headline employment number to be slowing a bit as we’re theoretically reaching full employment. The increase in participation and drop in wages suggest we’re not at full employment."
On Wednesday the Federal Reserve held interest rates steady as expected, with chair Janet Yellen giving few clues about the prospect of the next rate rise.
Read more: The Obama jobs story in four graphs
The rate-setting Federal Open Markets Committee (FOMC) previously revealed consensus expectations of three rate hikes during 2017, after raising the target range for the federal funds rate by 25 basis points.
The FOMC noted the labour market had continued to strengthen, despite a slight rise in unemployment to 4.7 per cent.
However, the unemployment rate is still at levels not seen since the global financial crisis began in 2008. The FOMC said it expected the labour market to “strengthen somewhat further” as the US approaches full employment.