USD: DXY at 99 – riding the data drought
The dollar index (DXY) reentered the 99 zone yesterday, buoyed by lingering unease toward the yen and the euro amid recent political upheavals. Markets appear to be treating the flare-up in trade tensions between China and the US with caution – if not outright dismissal.
While widely seen as yet another TACO trade initiative from the US side, China surprised markets by threatening further retaliatory measures against US curbs on its shipping sector. The dollar’s reaction has been muted so far. Investors seem increasingly resilient to trade noise and remain optimistic about a deal between the world’s two largest economies. Hopes for amicable negotiations were further reinforced when Scott Bessent stated yesterday that he still expects Trump to meet the Chinese president later this month at the Asia-Pacific Economic Cooperation summit in South Korea.
That said, the dollar continues to ride a shutdown-driven, data-free high. The return of the macro police may cap further upside, if not entirely kill the recent bullish pullback. Still, the shutdown is allowing new insights into what makes “a good NFP report” resonate more deeply, while the Fed remains hawkish in tone but dovish in action. Despite the September cut, in fact, the Fed’s forward guidance remains cautious – which, in net terms, is dollar-positive.
This means that once the shutdown ends, the dollar may emerge with stronger armour – better equipped to shrug off softer prints and rebound more forcefully on upside surprises, as most of the year-end rate cuts currently priced in get re-priced hawkishly. Today, Powell – as well as doves Bowman and Waller – are all scheduled to speak, offering key signals ahead of the October policy meeting and amid continued data silence.
EUR: Unanchored – EUR/USD slips as support fades
The break of the 100-day moving average – the backbone of the euro’s rally against the dollar this year – has weakened the significance of the 1.16 support level, which was breached again yesterday despite no fresh catalyst, after holding firm since July. Price action remains in pullback territory, but the breach was telling: it suggests the pair is no longer anchored to a key technical level and remains biased to trend lower, even in the absence of new drivers.
For a deeper correction to unfold, the macro narrative we’ve been building needs validation – namely through incoming US data. While expectations point to a resilient economic backdrop, the labour market may present a lower bar for disappointment. Add to that the ever-hawkish Fed – a clear dollar-positive – and the pair appears poised for a more sustained move lower.
EUR/USD appears more comfortable treating 1.1550/1.1560 as short-term support levels. Yet the level remains relatively untested – only revisited this summer and fall after years of absence. Buying interest may therefore fade easily, even without a distinct bearish catalyst, as the breach of the 100-day moving average also disentangles the pair from a more rigid uptrend structure.
GBP: Jobs soft, wages sticky
The freshly released UK labour market report points to continued softening, though the picture is less dire than earlier in the year. The shake-out triggered by the £26 billion payroll tax increase appears to be stabilizing somewhat: payrolls fell by 10,000 in September, following a revised 10,000 gain the month prior – broadly in line with economists’ expectations and less severe than the summer’s sharper cuts.
Unemployment ticked up to 4.8% from 4.7%, while weekly wage growth (ex bonus) slowed to 4.7% from 4.8% in the three months through August – the lowest since late 2021 and below consensus. Still, wage pressures remain elevated relative to the Bank of England’s comfort zone, with the current pace well above the 3% threshold typically seen as consistent with its 2% inflation target.
Sterling has dropped 0.4% so far against both the dollar and the euro, as the data prompted some dovish repricing for the BoE. However, that shift may prove short-lived. With wage growth and inflation still running above long-term averages, markets may soon reverse course and reprice toward a more prolonged hold.
GBP/USD has been trading below its 100-day moving average since around September 24th. The pullback has now evolved into a more meaningful retreat, with the pair eyeing the 200-day moving average as the next key support – currently marked at 1.3182. For now, the pair appears comfortable holding above the 1.3250/1.3275 zone.
Keep an ear out for remarks from Andrew Bailey and Alan Taylor later today, as any dovish reinforcement in their messaging could pressure support levels further.
Gold hits record after record
Table: Currency trends, trading ranges and technical indicators
Key global risk events
Calendar: October 13-17
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*The FX rates published are provided by Convera’s Market Insights team for research purposes only. The rates have a unique source and may not align to any live exchange rates quoted on other sites. They are not an indication of actual buy/sell rates, or a financial offer.
