Dollar Range-Bound Ahead of US Payrolls Report

Market sentiment remains cautious ahead of the US payrolls report due tomorrow. According to ING's FX Strategist Francesco Pesole, stable Federal Reserve rate expectations have supported the Dollar, despite a risk-on tone in the market.

The improved Gulf-related risk sentiment has weighed slightly on the Dollar, but Pesole notes that limited changes in Fed pricing should keep the currency in a broad range. The US payrolls report remains the key catalyst for market movements, and its unpredictability is likely to contain volatility.

The recent deal between Iran and Oman to open a safe shipping route in the Strait of Hormuz has contributed to a risk-on tone in the FX market, favoring a rotation from the Dollar to higher-beta currencies. However, Pesole emphasizes that G10 moves have been contained this week, suggesting that markets are waiting for tomorrow's payrolls report.

Expectations for upcoming Fed meetings remain unchanged since July's announcement, with 14-17bp consistently priced for September and 30-35bp for December. This is despite the recent decline in oil prices, which has fallen $15/bbl this week.

The ADP payrolls came in soft at 44k, while the ISM services rose less than expected to 54.1 yesterday. The services employment subindex plummeted to 47.5, indicating some mild downside risks for tomorrow's payrolls report.