US Dollar Index (DXY) climbs above 102.00 to weekly highs before October’s NFP release

• Weekly highs just above 102.00 mark a gathering recovery in the DXY as risk appetite weakens.
• A technology-led slump in global equities is driving demand for the safe-haven US Dollar, leaving it ahead of its peers.
• Following a run of upbeat labour market releases this week, investors are positioning for a robust US NFP report later in the day.

A 0.4% gain so far on Friday has taken the US Dollar Index (DXY) to weekly highs just above 102.00, with the US Dollar (USD) leading the major currencies. Support comes from both risk aversion following a technology-led equity sell-off and investors’ expectations of a strong US Nonfarm Payrolls (NFP) report later in the day. 

Sharp falls across global equity markets have left investors firmly risk-averse on Friday. Chipmakers’ shares have come under selling pressure amid concerns that the Democrats’ victory in the US midterm elections will lead to tighter regulation of the AI sector and delay plans for new data centres.

Dollar finds support as Fed’s labour market assessment reinforces defensive FX positioning

October’s US Nonfarm Payrolls report takes centre stage on the economic calendar, with a net employment increase of 65K forecast after September’s 29K gain. Expectations of an upside surprise in Friday’s NFP release have strengthened after this week’s labour market figures beat forecasts, including Wednesday’s ADP Employment Change Report and Thursday’s weekly Jobless Claims.

According to ING analyst Chris Turner, a “decent jobs number today will confirm the Fed's understanding that the US jobs market is 'solid' and could provide some support to short-dated rates and the Dollar.” 

Taking a broader view, Turner notes that “US short-dated rates have fallen close to 50bp since late September and the Dollar's yield advantage over other major pairs has softened a little,” while cautioning that it remains unclear “whether this tech sell-off leads to a broader re-assessment of the US growth and inflation trajectory.”