Investing.com – Stock market prices soared and stocks suffered weakness in response to Iranian missile attacks on Israel, but the US dollar’s rise was more muted, UBS noted, indicating a market that is not particularly overpositioned in short dollar transactions.
At 05:20 ET (09:20 GMT), the Dollar Index, which tracks the greenback against a basket of six other currencies, was trading 0.1% higher at 101.020, after rising about 0.5% in the previous session.
Tuesday’s soft September data apparently overrode the upside surprise from August’s data, with two-year US Treasury yields falling after their release.
“This was in line with our long-standing view that the market will asymmetrically weight weak U.S. data more heavily than resilient data, attributing more forward-looking strengths to the former,” UBS analysts said in an Oct. 2 note. in prices paid and in particular the employment components are very supportive of Fed rate cuts.”
The soft data came at the right time for bears in the USD, as Monday’s comments from Fed Chairman Jerome Powell suggesting another 25 basis point hike in rates from November had allowed for a modest pullback in the USD made after sharp losses since mid-August, UBS said.
“With Fed officials like Bostic making clear that further 50 basis point rate cuts are possible if the labor market shows signs of real weakness, even before the ISM data it was unlikely that Powell’s comments this week could have a lasting impact ,” said UBS.
As such, the focus now shifts very clearly to the September employment figures due out on Friday.
Economists at UBS expect rates to return to 180,000 points, above market expectations of 150,000 points, but remain at 4.2% – results that call for a 25 bp rate cut at the November 7 FOMC rather than another cut of 50 bp.
“From our perspective, with the spot already close enough to many of our year-end calls, it becomes more difficult to chase broad USD weakness at these levels without a firm view that Friday’s jobs numbers will be weak (e.g. payrolls below the 100,000 without upward revisions to the figures). previous months or an unemployment rate of 4.4% or higher),” UBS added.
