Dollar 'seems to have found its footing' – Payrolls could 'tip the scale' towards October hike

Matthew Ryan, CFA Ebury

The narrative of strengthening growth and stubborn inflationary pressures in the US will be tested this week by both the deluge in September labour market data and the PCE inflation report for August.

Market pricing for over three hikes with a terminal Fed rate of nearly 5% strikes us as overdone, but we acknowledge that the selloff momentum in fixed income markets generally makes it difficult to be contrarian.

With the Iran conflict far from showing any real prospect of resolution, the Fed putting to bed doubts about its independence, and the unsettling background of a worldwide sell off in bonds, the dollar seems to have found its footing.

Another strong payrolls report on Friday would provide further support for the greenback as this could be enough to tip the scale in favour of a second Fed rate hike in as many policy meetings in October.

Author

Matthew Ryan, CFA

Ebury

Matthew is Global Head of Market Strategy at FX specialist Ebury, where he has been part of the strategy team since 2014. He provides fundamental FX analysis for a wide range of G10 and emerging market currencies.

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