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Dollar Index: Weekly Analysis & Forecast

The U.S. dollar eased against a basket of currencies on Friday, as investors assessed Friday’s jobs report that showed U.S. hiring rose broadly in September but also that wage growth is slowing. The dollar index, which measures the currency’s strength against a basket of six rivals, was down 0.31% to 106.03. The index rose as high as 106.98 earlier in the session after data showed U.S. nonfarm payrolls increased by 336,000 jobs last month. The numbers for August were revised higher to show 227,000 jobs added instead of the previously reported 187,000. Economists polled by Reuters had forecast September payrolls rising by 170,000 jobs. Friday’s data pushed expectations for the first rate cuts further into late 2024, but failed to convince market participants of another hike this year, meaning that short-term yields – which play a dominant role in driving foreign exchange moves – remained relatively stable.

Post-payrolls, U.S. rate futures priced in a 42% chance of a rate increase by the end of the year, up from about 33% on Thursday, according to the CME’s FedWatch tool. The dollar’s recent strength has been underpinned by a rapid sell-off in U.S. government bonds, which sent yields to multi-year highs. While benchmark 10-year notes reached 4.887% and 30-year yields (US30YT=RR) hit 5.053%, both the highest since 2007, two-year notes (US2YT=RR) rose as high as 5.151%, holding below the 5.202% level hit on Sept. 21. The payrolls data showed monthly wage growth remained moderate, with average hourly earnings rising 0.2% after a similar gain in August. In the 12 months through September, wages increased 4.2% after advancing 4.3% in August.

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