The market has taken a long look at the August non-farm payrolls and decided it’s not weak enough to pricing in a 50 basis point Fed cut this month.
Initially, the softer headline number and downward revision caused a spike in 50 bps odds to 57% and a drop in the US dollar, however that move has now completely reversed, in part because the Fed’s Williams didn’t tip his hand. Critically, we will also get a speech from the Fed’s Waller at 11 am ET.
USD/JPY has been particularly volatile and is now 180 pips from the bottom.
USDJPY 10 mins
It’s a similar story in EUR/USD, which is down 70 pips from the top.
EURUSD 10 mins
The bond market is also validating the move, with yields now 1-3 bps higher on the day. The two-year is at 3.76% after falling as low as 3.64%. Ten-year yields are also 10 bps above the lows.