The dollar index (DXY00) recovered from early losses today and is up by +0.23%. The higher movement of T-note yields today strengthened the dollar’s interest rate differentials and sparked short covering in the dollar.
The dollar initially moved lower today as the US government shutdown entered its second day. Also, signs of weakness in the US labor market are bolstering the outlook for the Fed to cut interest rates at the October 28-29 FOMC meeting and are undercutting the dollar after today’s report from private firm Challenger, Gray & Christmas showed US employers have cut the most jobs so far this year since 2020.
US Sep Challenger job cuts fell 25.8% y/y to 54,064. Employers have announced plans to cut 946,426 jobs so far this year, the most for the same comparable period since 2020. For January through September, US-based employers announced plans to add almost 205,000 jobs, the weakest year-to-date stretch since 2009.
The markets are pricing in a 100% chance of a -25 bp rate cut at the next FOMC meeting on Oct 28-29.
EUR/USD (^EURUSD) today is down by -0.17%. Today’s rebound in the dollar from early losses to higher on the day is weighing on the euro. Also, today’s report, which showed the Eurozone’s August unemployment rate unexpectedly increased, is a dovish factor for ECB policy and bearish for the euro. The euro initially moved higher today on hawkish comments from ECB Governing Council member Kazaks, who said current ECB interest rates are appropriate.
The euro also has support from central bank divergence, as the markets view the ECB as largely finished with its rate-cut cycle, while the Fed is expected to cut rates by roughly two more times by the end of this year.
The Eurozone Aug unemployment rate unexpectedly rose by +0.1 to 6.3%, showing a weaker labor market than expectations of no change at 6.2%.
ECB Governing Council member Kazaks said, “If nothing significant happens, the ECB can keep interest rates where they are and the 2% rate is very appropriate.”
Swaps are pricing in a 1% chance of a -25 bp rate cut by the ECB at the October 30 policy meeting.
USD/JPY (^USDJPY) today is up by +0.09%. The yen gave up overnight gains and turned slightly lower today as T-note yields rose. The yen initially moved higher today after the Japan Sep consumer confidence index rose more than expected to a 9-month high. Also, hawkish comments from BOJ Deputy Governor Uchida pushed the Japanese 10-year bond yield to a 17-year high of 1.674% and supported the yen when he stated that the BOJ will continue to raise interest rates if the economic outlook materializes.
finance.yahoo.com
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