Dollar Volatility Ahead: Nonfarm Payrolls and Geopolitics to Drive Fed Rate Expectations

The US dollar index traded in a narrow range near 101.10 on Monday, ahead of key economic data releases this week. The Federal Reserve's policy trajectory is expected to be influenced by these indicators, particularly the September nonfarm payrolls report due on Friday.

Market pricing currently assigns nearly a 68% probability to another rate hike at the Fed's October meeting. The CME FedWatch tool indicates that the probability of another rate hike has risen since the Fed raised rates by 25 basis points in its September meeting, lifting the target range to 3.75%-4.00%, and signaling at least one additional hike could follow before year-end.

Strong nonfarm payrolls and a low unemployment rate would reinforce bets on a 'higher-for-longer' tightening path, while weaker-than-expected readings could prompt the market to lower its probability of further rate hikes.