Dollar still likely to rebound from latest payrolls setback

Another soft non-farm payrolls report has put the dollar on the backfoot again, but given the extent of Fed easing already discounted we continue to think the greenback will remain rangebound over the coming weeks. While weak employment growth points to downside risks for the economy and US interest rate expectations, we doubt that the FOMC will cut rates as rapidly and as far is now discounted when US inflation is still running above target and GDP growth on track for a robust Q3. Next week’s US inflation data are likely to cement expectations for a 25bp rate cut from the FOMC the following week, but given the money market is again putting meaningful odds on a 50bp rate cut the bar for a dovish FOMC outcome looks exceedingly high.