The NFP data hinted at the need for another rate hike, triggering a rebound in the US dollar against all major currencies.

The US dollar index (DXY) rocketed more than 1 percent to the 102.80s following the release of Nonfarm Payroll (NFP) and Purchasing Managers' Index (PMI) data tonight (February 3). Both put in excellent performances, triggering the greenback's rebound against all major currencies.

AUD/USD and NZD/USD immediately fell about 2 percent. EUR/USD fell 0.9 percent to around 1.0800, while GBP/USD sank 1.3 percent to around 1.2060. USD/JPY also pushed up almost 2 percent above the 130.00 threshold.

DXY Daily

The US Department of Labor reported that Non-Farm Payrolls increased by 517K in January 2023. This was nearly three times higher than market estimates (185K), breaking the slowing trend that has lasted for the last four months. Meanwhile, the December 2022 NFP data was revised up from 223K to 260K.

Another US employment breakdown also turned green. The unemployment rate fell from 3.5% to 3.4%, despite previous consensus predicting an increase to 3.6%. Data on average hourly wages grew 4.4% (Year-on-Year); weaker than the previous period but more vibrant than the estimate pegged at 4.3%.

The series of data indicates that the US labor market is still "too hot" even though the Fed has tried to dampen it with a jumbo increase in interest rates over the past year. The inflation rate has the potential to remain at a high level for longer as long as this occurs. As a consequence, the market is expecting another increase in the Fed's interest rate.

"The idea that the Fed's (rate hike) cycle is ending sooner than the ECB or the BoE is likely to be questioned," said Kathy Jones, chief fixed income strategist at Charles Schwab.

"The NFP  increase was very large, which may have had a seasonal element, but it was impressive with increases and revisions well above expectations. The average NFP increase in 2022 was 401k," said Greg Michalowski of Forexlive.

PMI Non-Manufacturing data further hinted that the US economy might only experience a slowdown and avoid a recession. ISM reported a significant increase in its score from 49.2 to 55.3, indicating that economic activity in this sector has returned to an expansionary state.

As of press time, the US dollar index rally is starting to recede back towards the 102.55 band. Market participants may need more time to examine the implications of this new data. Still, it's clear from the numbers that the US economy is off to a solid start in 2023.