Dollar Index Rises as Markets React to Iranian Missile Attacks - UBS Analysis
In the wake of Iranian missile attacks on Israel, the price of soared while equity markets experienced weakness. However, UBS noted that US dollar gains were relatively subdued, indicating a market that is not heavily positioned in short dollar trades.
According to UBS analysts, Tuesday's soft September data took precedence over the positive surprise in August data, leading to a 0.1% increase in the Dollar Index to 101.020. The market's reaction to weak US data suggests that investors are more inclined to anticipate future rate cuts by the Federal Reserve.
Fed Chair Jerome Powell's recent comments about potential rate cuts in November had initially caused a modest pullback in the USD, but the focus now shifts to the September employment data set to be released on Friday. UBS economists are predicting a bounce back in headline to 180k, potentially leading to a 25bp rate cut at the 7 Nov FOMC meeting.
From an investment perspective, UBS advises caution in chasing USD weakness without a clear view on Friday's job numbers. If the data shows significant weakness, such as payrolls below 100k or an unemployment rate of 4.4% or higher, it could signal a more substantial rate cut by the Fed.
In conclusion, investors should pay close attention to Friday's job data release as it could have a significant impact on the USD and financial markets. Understanding the implications of this data is crucial for making informed investment decisions in the coming weeks.