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NFP-Triggered USD Rally Proves Short-Lived

FOREX
  • The September NFP report comfortably topped expectations, with the US adding 336k jobs over the month, helping prompt a surge in the US dollar and a re-steepening of the US yield curve. The very long-end of the sovereign yield curve spiked to put 30y yields back above 5.00% and trigger a broad greenback rally.
  • This USD strength was short-lived, however, with yields undergoing a full reversal off highs, undermining the USD Index and cementing the fourth consecutive negative close for the greenback. The reversal came as the focus turned to softer-than-expected average hourly earnings, which spell further downside pressure on the Employment Cost Index and less pressure on the Federal Reserve to hike rates further beyond the end of 2023.
  • The NFP report boosted short-end pricing marginally, with OIS-implied pricing for the November 1st FOMC decision rising to 7.5bps, still well short of a 50% chance for a 25bps hike.
  • JPY was the poorest performer, hampered by the risk-rally that accompanied a rollover in US yields. High beta currencies, most notably the SEK, which has outperformed NOK through the week on the back of a weaker oil prices, with the cross in close proximity to the June 23 low at 0.9834 as the next clear downside level.
  • Focus for the coming week turns to the US CPI release, the last look at inflation before the November 1st FOMC meeting. Expectations for the September print are for a small softening in annual headline rates to 4.1% Y/Y for core and 3.6% Y/Y for the headline, while monthly prints for core and headline are both expected at 0.3% M/M.
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