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Currencies flatline into jobs reports

The dollar and Treasury yields are under pressure ahead of a non-farm payrolls report that could shed more light on how the economy is holding up amid the most aggressive monetary tightening cycle in decades. The trade-weighted greenback is almost unchanged relative to yesterday’s levels, with week-to-date gains at just 0.2 percent, while ten-year Treasury yields are holding at 4.73 percent, well off Tuesday’s 4.87 percent high.

The pound is struggling to gain momentum after the Bank of England’s Ben Broadbent yesterday articulated a change in the central bank’s reaction function, appearing to suggest that growth risks were beginning to take precedence over inflation in determining policy direction. The Deputy Governor said “There are now reasonably clear signs that monetary policy tightening is having some effect, not least in the shape of demand,” pointing to “weaker demand growth and the beginnings at least of some rise in unemployment” as signs of an incipient softening in price and wage pressures.

Oil benchmarks are extending their losses, with West Texas Intermediate going for $82 a barrel, down from above $95 in late September, while Brent trades for less than $84. A slowing global economy, rising borrowing costs, and a surging dollar have all combined to suppress demand expectations in the last week, helping squeeze speculative momentum traders out of the market.

The Canadian dollar remains weak, clinging to the 1.37 handle in interbank markets as traders brace for volatility around today’s employment numbers. On the colder side of the 49th, job creation is seen slowing in September, adding to rising population growth in pushing the unemployment rate higher.

In contrast, the American economy is thought to have added 160,000 new roles in September, down slightly from 187,000 the prior month, but sufficient to outpace population growth. With job growth running near pre-pandemic averages, the unemployment rate is seen holding at a historically low 3.7 percent, close to the prior month.

A hotter-than-anticipated payrolls report could exacerbate the week’s rout in bond markets and trigger renewed strength in the dollar – tightening financial conditions enough to bring risk-sensitive currencies down more violently. A soft print, on the other hand, could unleash a more profound correction of recent excesses and help bolster global risk assets. Either way, we would caution against drawing long-term conclusions: payrolls reports are lagging, not leading indicators, and despite all the talk of “soft landings” and “labour hoarding”, history suggests that large-scale layoffs could begin quickly if the economic cycle turns. The dollar looks overbought at current levels.

Still Ahead


Mexican consumer price inflation likely decelerated again in September, with consensus forecasts pointing to a 4.5-percent rise in year-over-year terms, down from 4.64 percent in the prior month. Few expect additional rate increases from the central bank, but with core prices still seen climbing almost 5.75 percent over last year, inflation remains well above the central bank’s circa-3 percent target, and a continued hawkish bias remains well-justified. (08:00 EDT)

Bond markets in the US are closed for the Columbus Day holiday and all markets are closed in Canada for Thanksgiving Day.


Minutes taken during the Federal Reserve’s September meeting should contain a heavier emphasis on downside risks – strain was evident in the consumer spending and business confidence data available at the time – and some exploration of how tighter financial conditions might impact the economy. With another potential government shutdown looming, discussion surrounding the September 30 deadline could provide insight into the central bank’s reaction function in November. (14:00 EDT)


The Office for National Statistics is expected to say the UK economy slowed further in August, with elevated inflation, high borrowing costs, and widespread strike action combining to dampen activity across manufacturing and services sectors alike. But gross domestic product has surprised to the upside repeatedly, and recent revisions showed the country turning in a relatively respectable performance through much of the post-pandemic period. Signs of resilience could yet push the Bank of England into hiking rates further – although we doubt it. (02:00 EDT)

The European Central Bank’s September meeting ended in a statement widely perceived as dovish – seemingly telegraphing an end to tightening – but leaks afterward suggested that some officials had maintained a more hawkish bias, and speeches since have confirmed more hikes are possible if inflation remains elevated. It’s not our base case, but markets could react to a more aggressive tone in the meeting record by raising odds on a last move in 2023. (07:30 EDT)

Core US consumer prices are seen climbing 0.4 percent month over month in September, accelerating slightly from 0.3 percent in the prior month on a rise in used car costs. The all-items measure should weaken more materially as August’s jump in gasoline prices is washed out of the data, bringing the print down to 0.4 percent from 0.6 percent previously. (08:30 EDT)

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