The DXY Index has risen for the third week amid Fed-hike repricing. Today’s monthly US jobs report will be important in determining if the DXY will extend or retreat from 102, a critical level. September nonfarm payrolls are expected to add 90k jobs, down from 162k in September. The unemployment rate is expected to remain at 4.1% for the month.
Three senior Fed officials – Fed Vice Chairs Philip Jefferson and Michelle Bowman and New York Fed President John Williams – have pushed back expectations for a back-to-back rate hike following the softer-than-expected PCE inflation data. Market pricing for a rise at the October 28 FOMC meeting plunged to 28% from 70% on September 28. The US Treasury 30Y yield eased for the first time in eight sessions by 1.6 bps to 5.61%.
The DXY rally, however, could extend if markets shift from a pro-USD to an anti-EUR positioning. The EUR is also known as the “Anti-USD” because it accounts for 58% of the DXY basket. The market drew its technical signals from the EUR losing ground against JPY, CHF, and GBP. However, EUR/CHF may have found support at the 100-day level around 0.93.
France’s belt-tightening Budget 2027 could also alleviate concerns over widening OAT-Bund spreads and its fiscal vulnerability in the short term. European Central Bank President Christine Lagarde declined to characterise the widening spread as a euro area financial stability problem, instead describing it as a repricing. Lagarde kept her sights on returning inflation to target.
Finally, CFTC speculative net short euro positioning is at its most bearish since the Trump Trade of 4Q 2024, suggesting that a EUR-led DXY rally may require a fresh catalyst and could be at risk if the rising US long-yield story shifts from Fed-tightening expectations to US fiscal-financing worries again.
Quote of the Day
”"It is not the strongest of the species that survives, nor the most intelligent that survives. It is the one that is most adaptable to change."
Charles Darwin
Today in history
Charles Darwin returned to England aboard the HMS Beagle on October 2, 1836, arriving in the port town of Falmouth after a nearly five-year global surveying expedition.
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