Payrolls & ratings downgrade leave the dollar adrift

With the mini-meltdown in US bond markets taking centre stage over recent days, the dollar had been on the front foot for much of the week until the softish non-farm payrolls report earlier today prompted a rebound in bond markets and a drop back in the dollar. The US labour market is starting to show clearer signs of loosening up, which means that the probability has increased that the FOMC’s hike last week proves the last of this hiking cycle. Next week’s CPI data could of course throw a spanner in the works for the short term, but our sense is that underlying price pressures will continue to ease over the autumn, paving the way for the FOMC to shift towards rate cuts next year.