The US Dollar (USD) is extending gains for a fifth day, driving the Dollar Index (DXY) to test the 100 area on the back of weaker equity market risk sentiment, Scotiabank's Chief FX Strategists Shaun Osborne and Eric Theoret report.

USD gains broadly

"The JPY is outperforming, however, reflecting a haven bid and strong verbal intervention from Finance Minister Katayama who repeated warnings against “one-sided and rapid” moves in the currency. Bonds are broadly higher with a lot of red on the equity screens this morning following comments on the frothy state of stocks from prominent Wall St leaders. Investor sentiment is showing signs of souring around tech darlings that have led the recent surge in markets. It is probably helping the USD and not helping risk sentiment that a cloud of uncertainty has descended over the Fed policy outlook."

"A basic AI scrape and bias assessment of the past month’s public FOMC comments on the economy and policy outlook reveal a fairly even split among hawks (31% of all comments) neutrals (31%) and doves (38% - all numbers rounded). Governor Miran made his case again for aggressive rate cuts in comments on Bloomberg TV yesterday morning. Governor Cook later said policy was modestly restrictive and that she supported last week’s cut as the risk to jobs outweighed inflation risks. SF Fed President Daly (a non-voter) added that policymakers should keep an open mind about a December cut."

"Yesterday’s US Manufacturing PMI data was weak and the tone of respondents’ comments reflected “difficult” or “strained” conditions. Yet both the Atlanta and St Louis Fed’s GDP running estimate models of GDP suggest the Q3 economy is still rattling along at around a 4% clip. With two cuts under the Fed’s belt already when the economy was growing at a fractionally slower (3.8%) pace, the lack of consensus on the policy outlook is perhaps easier to understand. US Trade and Factory Orders data are a no-show today but JOLTS data for September are due at 10ET."