The US Dollar (USD) is tracking generally firmer against the major currencies but gains are less apparent for the DXY as the EUR, CHF and JPY are essentially holding up and trading little changed on the session, Scotiabank's Chief FX Strategists Shaun Osborne and Eric Theoret report.

Fed’s dovish bias limits upside for DXY

"USD gains are more obvious against the likes of the NZD and AUD, with the AUD tracking lower (and pulling the NZD down with it) following comments from RBA Deputy Governor Hauser suggesting that the central bank was in no rush to tighten policy. After President Trump wheeled out economic intervention to curb hedge fund investment in housing and force defense companies to boost capex yesterday, global stocks are soft which may be adding to the moderate bid for the USD and the better offered tone of the Aussie and Kiwi."

"Government bonds are mostly weaker, however, suggesting the demand for havens is not running particularly deep across investors. US data yesterday was mixed, adding to dollar inertia ahead of tomorrow’s key payrolls data. ADP was a little weaker than expected, the ISM Services report was stronger than forecast while the JOLTS headline figure was weaker than anticipated; hiring remains soft but firing also remains subdued."

"Earlier this week, the Fed Governor Miran said that 'more than' 100bps of Fed rate cuts were needed this year. It’s unlikely ISM data will have changed his view so expect his strongly dovish bias to remain intact. Swaps are pricing in 59bps of cuts for the year and just 11bps of easing risk through March at this point. Technically, the DXY still looks capped in the upper 98 area. The USD will be vulnerable to developments that prompt markets to reprice OIS in favor of a more aggressive Fed easing."