Wage reaction may mix with Middle East unrest – ING

The US dollar (USD) continued to receive substantial support due to higher oil prices. The latest crude oil rally was led by President Biden, who said strikes on Iran’s oil facilities were seen as part of Israel’s retaliation. The commodity market’s assumption was that Biden was likely trying to prevent supply disruptions and an oil price shock ahead of the election, hence the surprise, notes FX strategist Francesco Pesole.

Payment Stables and Middle East Conflicts to Drive DXY Movements

“Today, the reaction to the US jobs data will likely be mixed with geopolitical and commodity spreads in currencies, rates and stocks. The consensus payrolls number is 150,000, but more focus should be on the unemployment rate, which is expected to have flattened to 4.2%. Our economists estimate is 115,000 for payrolls and 4.3% for the unemployment rate.”

“That probably doesn’t change the picture for the Federal Reserve, which should cut further by 25 bps in November and push for 50 bps for now. However, there has already been some repricing in the USD OIS curve this week and the dollar could correct lower on a slightly weak jobs report.”

“But even assuming the situation in the Middle East does not evolve further and oil prices fall back, a substantial disappointment in US data is likely to be needed to reignite the rise in US dollar rates. Our view is that markets will gradually align with the Dot Plot’s 25bp easing pace and that dollar downside is limited in the US election. Our rates team believes the 10-year Treasury can return to 4.0% in the near term if we see a consensus print on wages today.”