Dollar boosted by hawkish Fed rhetoric.

US initial jobless claims increased to 219,000 in the latest week from a revised 190,000 previously and above consensus forecasts of 203,000 while continuing claims increased to 1.36mn from 1.35mn.

Challenger reported layoffs of just below 30,000 for September and a 68% increase from the previous year and the survey also reported that hiring intentions had declined to the lowest September level since 2011.

Minneapolis Fed President Kashkari stated that he is seeing almost no evidence that inflation has peaked. He added that he was not comfortable with saying that the Fed is going to pause until there’s evidence that underlying inflation is cooling. In this context, he stated that the Fed was some way away from a pause, although he also added that there is a risk of over-shooting.

Chicago Fed President Evans stated that core inflation is a concern and that the Fed will look to raise rates by a further125 basis points over the next two meetings to 4.50-4.75%.

Governor Waller stated that the Fed is not considering slowing rate hikes on financial stability concerns with rate hikes continuing until there are signs of inflation beginning to moderate. He did add that the central bank will have a thoughtful discussion about the pace of tightening at the next meeting.

Fellow Governor Cook stated that the Fed was willing to change course as the data evolves, but Cleveland Fed President Mester stated that rates will not be cutting rate at all in 2023.

The relentless hawkish Fed rhetoric helped push US yields higher.

The 10-year yield increased to highs above 3.80% before attempting to stabilise.

Higher US yields and weaker equity markets were key elements in providing further dollar gains during the day with European currencies back on the defensive, especially with markets still fretting over energy developments and potential shortages within Europe.

The latest US employment report will be released on Friday. The data will be crucial for short-term market direction and potentially have important medium-term implications given the impact on Federal Reserve thinking.

Consensus forecasts are for an increase in non-farm payrolls of around 265,000 from 315,000 previously. The unemployment rate is expected to hold at 3.7% with an increase in average hourly earnings of 0.3%.

A robust increase in payrolls and strong increase in wages would keep the Fed in hawkish mode and reinforce resistance to any policy swerve. Weak data would increase speculation of a Fed pivot.

The UK PMI construction index rebounded to a 3-month high of 52.3 for September from 49.2 previously and above consensus forecasts of 48.0.

Overall business confidence also declined to the lowest level since July 2020, maintaining concerns over the outlook.

Bank of Canada Governor Macklem stated that there were still important inflation concerns and that further rate hikes are in the pipeline with the central bank watching core inflation data very closely.

Overall Euro-Zone confidence remained weak. Higher yields provided net dollar support. The dollar also secured defensive support as equities lost ground with notable net gains EUR/USD dipped to lows below 0.9800 and held just below this level on Friday.

Higher US yields also undermined the yen. USD/JPY challenged the 145.00 level, but traders were reluctant to push the dollar above this level. Japanese Prime Minster Kishida stated that recent sharp, one-sided moves are undesirable.

The Swiss franc was unable to gain further support. EUR/CHF settled near 0.9700 with USD/CHF strengthening to just abbe 0.9900.

Domestic UK confidence remained brittle at best with criticism from Bank of England member Haskel. Weaker risk appetite undermined Sterling with sharp net losses on the day. GBP/USD dipped sharply to lows around 1.1120 before a slight and fragile recovery as it traded below 1.1150 on Friday.

Commodity currencies retreated sharply as equities dipped and US yields moved higher.AUD/USD dipped to below 0.6400 before trading just above this level on Friday. USD/CAD secured a strong advance to 1.3750. Canadian jobs data will also be released on Friday with unemployment expected to remain at 5.4%.

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