The FX market appears to be teeing up a repeat of yesterday's price action as soft economic data led to US dollar selling and a bid in bonds. This time it doesn't appear to be accompanied by bids in equities, but it's early.
The dollar is at the lows of the day right across the board, with the exception of USD/JPY which is a dozen pips away.
EUR/USD is now at the highest since August 21 as the case for a larger retracement grows.
The market pricing on a Fed hike in September is down to 9.5% from 13% a day ago and the odds for November 1 are down to 45% from above 50/50 at the start of the week.
The move in the dollar is a pricing out of US hikes and tail risks around material US hikes and a blowout in bond yields. The likelihood of all of those things is falling and will crater if Friday's non-farm payrolls report is soft.
It's increasingly clear to me that US rate hikes are biting and that the economy is slowing down. Now the starting point this quarter is a +5.9% Atlanta Fed GDPNow so there's plenty of rope before real recession worries but the lesson of history is that once layoffs start, they're tough to stop. And with the Fed committed to a bitter fight against inflation, help might not be on the way.
