The US Dollar’s (USD) muted response to stronger US jobs data suggests positioning is far more balanced than in recent months, even as markets push Fed cut expectations from December to January. With Dollar Index (DXY) hovering at the top of its five-month range and USD/JPY above 157, attention turns to US PMI data — and the rising risk of Japanese FX intervention, ING's FX analyst Chris Turner notes.

Fed cut expectations shift to January

"A decent rise in headline US jobs growth and an unemployment rate only rising because of an expansion in the labour force could have sent the dollar a lot higher. Instead, US short-dated rates fell 5bp and the dollar softened a little – suggesting dollar positioning is far better balanced (less short) than it has been over recent months. The dollar also stayed a little soft with the huge 3.7% intra-day drop in US equities, which looked like fund managers using the liquidity of the post-Nvidia earnings rally to pare back positions pre-Thanksgiving."

"The terminal rate for the easing cycle is still priced around the 3.00% area for next year, but the market has switched to favouring the next cut in January (24bp priced) versus December (10bp priced). There is also the residual risk of Fed independence hanging over the dollar, too. Betting markets price the frontrunner for the next Fed Chair as Kevin Hassett, who is currently the Director of the National Economic Council and is probably seen as the most political of the candidates. Yesterday, he said he would 'cut rates right now' if he were Fed Chair."

"For today, the US focus will be on the S&P PMI readings (expected to be quite strong) and final readings for November consumer sentiment. DXY is sitting at the top of the five-month range – largely because USD/JPY is trading above 157. There is not an obvious catalyst for DXY to come lower near term, although we are getting close to intervention in USD/JPY from Japanese authorities, which could see up to $100bn supplied to the market."