US stock markets opened in the red after stronger-than-expected jobs figures cast doubt on expectations of an interest rate rise this month.
Non-farm payroll data showed the US economy added 224,000 jobs in June. Economists had expected 160,000 new jobs.
Before the figures were released, traders thought a cut in July was almost certain. But strong data could push the US Federal Reserve to hold off on planned cuts.
Erik Norland, senior economist at CME Group, said the report “creates a bit of a conundrum” for the Fed.
Stock markets reacted badly to the positive economic data due to its interest rate implications. Interest rate cuts boost shares as investors go looking for higher returns, while companies get access to cheap money.
The S&P 500 index had fallen 0.9 per cent by 4pm UK time, while the Dow Jones industrial average had dropped 0.8 per cent. The tech-heavy Nasdaq index had fallen 0.9 per cent.
But US bond yields, which move inversely to prices, and the dollar rose following the news. Higher interest rates cause more investment in dollar-denominated assets and bond buyers to demand higher returns.
The dollar had risen 0.6 per cent by 4pm against the euro to buy €0.891. The yield on a 10-year US government bond had climbed 0.11 percentage points to 2.06 per cent.
European markets were also down across the board, driven by weak US factory data and concerns about Fed cuts.
The German Dax index had dropped 0.7 per cent, while the UK’s FTSE 100 fell 0.8 per cent.
Sterling was dragged to a six-month low as traders rushed towards the dollar. It had fallen 0.6 per cent against the dollar to buy $1.251.
The greenback’s rise topped off a dismal week for the pound that has been weighed down by Brexit worries and weak economic data.
David Lamb, head of dealing at Fexco Corporate Payments, said the prospect of Fed rate cuts in September or October “has done little to take the steam out of the dollar, which is on course to post a very strong week against both the euro and sterling”.