Investing.com – Stock prices rose and stock markets suffered weakness in response to Iranian missile attacks on Israel, but gains in the US dollar were more weak, UBS said, suggesting a market that is not particularly concentrated in short dollar trades.
At 05:20 ET (09:20 GMT), the dollar index, which tracks the US currency against a basket of six other currencies, rose 0.1% to 101.020, after rising about 0.5% in the previous session.
Tuesday’s weak September data appears to have taken precedence over the upward surprise in August data, with two-year US Treasury yields falling after its release.
“This was consistent with our long-standing view that the market will asymmetrically weight weak US data more strongly than resilient numbers by attributing more forward-looking forces to the former,” analysts at UBS said in an October 2 note. The prices paid and employment components in particular strongly support Fed rate cuts.
UBS said the weak data was timely for US dollar bulls, given that Monday’s comments by Federal Reserve Chair Jerome Powell suggesting interest rate cuts would revert to 25 basis point increases from November had allowed for a modest pullback. For the US dollar after the sharp losses it witnessed since mid-August.
“With Fed officials like Bostic making clear that further 50 basis point rate cuts are possible if the jobs market shows signs of real weakness, even ahead of the ISM data, Powell’s comments this week are unlikely to have a lasting impact,” UBS added.
As such, the focus now turns very clearly to September employment data due on Friday.
Economists at UBS are looking for a major rebound to 180,000, above market expectations of 150,000, but remaining at 4.2% – results that call for a 25 basis point rate cut at the FOMC meeting on November 7 instead. Another cut of 50 basis points.
“In our view, with the spot rate already close enough to many of our year-end forecasts, it becomes difficult to chase overall USD weakness at these levels without a firm view that Friday’s jobs numbers will be weak (e.g., payrolls below $100K) Without upward revisions to jobs forecasts) UBS added: “In the previous months or an unemployment rate of 4.4% or higher.”
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