Today was a roller coaster ride between a mixed non-farm payrolls report and Fed comments.
Now that all the cards are on the table, the market is starting to move away from the 50 basis point level. The odds have fallen to 23% from 57% immediately after the jobs report.
Meanwhile, 70 basis points have been priced in for the November 7 meeting and 112 basis points for the year-end. This highlights the very high probability of a meeting of at least 50 basis points in the coming months.
But right now, the only thing that matters to the market is the upcoming meeting, and risk aversion in equity markets is driving up demand for the dollar. This is despite Treasury yields falling 4-9 basis points across the curve (with the front end advancing). The message here is that if the Fed doesn’t cut rates by 50 basis points now, it will have to cut them further later.
In theory, this should be a negative for the US dollar, but the market is now focused on seeking safety, especially commodity currencies. Some of this may be related to the weakness in the AI trade, with NVDA shares down about 5.3% today and Broadcom shares down about 10% after earnings.
On the other hand, commodity currencies were particularly weak, with the Australian dollar down 1%.
AUD/USD 1 hour