Dollar Strength Fades Amid Investor Skepticism

The US dollar strengthened after the release of August's jobs report, which showed nonfarm payrolls rose by 162k, exceeding expectations. This led to a higher probability of further Federal Reserve tightening by December, with markets now pricing in around 60% chance of a 25bps hike at the September FOMC meeting and approximately 35bps of cumulative tightening by year-end.

However, despite the stronger-than-expected jobs data, the DXY index remains little changed since Fed Chair Warsh's Jackson Hole speech. This suggests that investors are not yet convinced of a sustained dollar rally.

The labour market continues to show resilience, with nonfarm payrolls rising above consensus expectations and labour force participation improving to 61.6%. Meanwhile, average hourly earnings slowed slightly to 3.1%yoy from 3.2%yoy, indicating that wage pressures continue to ease gradually.