US Dollar Strengthens as Fed Hike Expectations Rise
The US dollar has strengthened following the release of the nonfarm payrolls report on Friday. The report showed a stronger-than-expected jobs market, which has encouraged market participants to price in more Federal Reserve rate hikes. The 2-year US Treasury yield has increased by around 3-4bps since the nonfarm payrolls report was released, with around 15bps of hikes priced in for this month's FOMC meeting.
The stronger US dollar has been driven by the pick-up in US yields and a more hawkish outlook for Fed policy. However, it's not clear whether the Fed will hike rates this month, as the upcoming US CPI report is expected to be a key factor in determining their decision.
Fed Governor Waller stated that if disinflation continues in the data over the next two weeks, he would support holding the target for the federal funds rate at its current setting. The nonfarm payrolls report also provided further evidence that wage growth has continued to slow this year, with average hourly earnings growth slowing to an annual rate of 3.1% in August.