Commenting on better-than-expected US nonfarm payrolls and increased likelihood of Fed tapering, Caleb Thibodeau, Associate at Validus Risk Management, said: “In the last Fed meeting, we heard Powell brushing off labor market sluggishness, indicating the employment recovery was on a strong, very robust path that will catch-up to inflation – this was definitely the feeling from today’s change in nonfarm payrolls and drop in the unemployment rate.

“Looking ahead, the market may struggle to balance competing forces. On one hand this release is certainly a sign of good and continued economic growth, though it also much-increases the probability of the Fed tapering their $120bn monthly asset purchases.

“With the inflation box considered ticked, strong labour market data releases such as this contribute toward ticking the second box of maximal labour market participation. Once progress is identified toward this second goal in the Fed’s eyes, it will most likely prepare for tapering and has already prepared the market for this – perhaps by the end of the year.

“This change in payrolls fits in with a larger labour market recovery story playing out, seen from higher services PMI earlier this week and a high amount of job openings. While it is unusual to have unemployment numbers at their current levels in tandem with high job openings, transitional labour market frictions appear to be reducing along with COVID restrictions.

“Importantly, Powell was very deliberate in specifying there is no quantitative threshold which the Fed is looking for on jobs reports, leaving the door open for what defines ‘substantial progress’. The market seems to be in agreement today that this release will almost certainly fit the definition of further progress.”