UBS fears tracking dollar weakness ahead of payrolls By Investing.com

Investing.com – Prices rose and equity markets suffered weakness in response to Iranian missile attacks on Israel, but gains in U.S. dollars were more muted, UBS noted, suggesting a market that is not particularly overextended in short transactions in dollars.

At 05:20 ET (09:20 GMT), the dollar index, which tracks the greenback against a basket of six other currencies, traded 0.1 percent higher at 101,020 after gaining about 0.5 % in the previous session.

Tuesday’s weak September data apparently took precedence over the upside surprise in August data, with 2-year US Treasury yields falling after their release.

“This was consistent with our long-standing view that the market will asymmetrically weight weak US data more heavily than strong numbers, attributing more forward-looking power to the former,” UBS analysts said in a note dated October 2. the components of prices paid and employment in particular are very supportive of a cut in Fed interest rates.”

The weak data was opportune for USD bears as Fed Chairman Jerome Powell’s comments on Monday suggesting rate cuts would return to 25bp hikes from November allowed the USD to pull back modestly after losses strongest since mid-August, UBS said.

“While Fed officials like Bostic have made it clear that further 50bp rate cuts are possible if the labor market shows signs of real weakness, even before the ISM data, Powell’s comments this week were unlikely to have an impact sustainable,” UBS added.

As such, the focus is now very clearly on the September employment data due on Friday.

UBS economists look for the title to return to 180,000, above market expectations of 150,000, but holding at 4.2% – results that argue for a 25bp rate cut at the November 7 FOMC rather than another 50 pb.

“In our view, with spot fairly close to many of our year-end calls, it becomes harder to watch for overall USD weakness at these levels without a firm view that Friday’s jobs number will be weak (of (eg wages below 100,000 with no upward revisions for prior months or an unemployment rate of 4.4% or higher),” UBS added.