Welcome to September. A traditionally tough month for stocks and, more recently bonds, is starting off in rather typical fashion, Scotiabank's Chief FX Strategists Shaun Osborne and Eric Theoret report.

USD firmer amid stock and bond market losses

"A sell-off in global bonds, driven by concerns about weak fiscal positions in the UK and France, has been accompanied by a drop in global stocks and a sharp rise in the USD. Yield curves continue to steepen, however, and while the focus appears to be on Europe as the catalyst for this morning’s moves, US Treasurys are underperforming in the 10Y sector of the curve. Gold hit a new high just above $3508 before easing back."

"A court ruling that many of President Trump’s tariffs are illegal has not had an obvious impact on markets at this point. Tariffs remain in place through October 14, pending a Supreme Court appeal. The USD has caught a solid haven bid this morning, pushing the DXY back towards its recent range peaks, but this is a knee-jerk response to broader market developments and not a situation that will necessarily develop. There is a lot of data to plow through this week but attention is squarely on the NFP update Friday. Forecasts anticipate another soft (75k) gain in jobs in August which will support the outlook for a 25bps cut at the September 17th FOMC."

"Very weak data will bolster expectations that the Fed could cut rates more aggressively. Renewed pressure on the USD may build as the week progresses. Beyond the risk of lower short-term interest rates, other challenges for the USD remain in the form of weak fiscal policy and the White House’s attempt to reshape the make up of the FOMC. DXY gains are likely to remain capped by its recent peaks in the 98.75/85 area at least ahead of the jobs data later this week."