Yesterday, even without an explicit trigger, the US dollar rallied quite a bit, with EUR/USD falling below 1.095 and USD/JPY targeting 150 again, Commerzbank’s FX analyst Michael Pfister notes.

Inflation figures are likely to be quite acceptable

“At the same time, the market is now pricing in just around 42 basis points (bp) of Fed rate cuts by the end of the year (almost 20bp less than a week ago), which would not even be equivalent to a 25bp cut at each of the two remaining meetings. Looking further ahead, the market has priced out another 20bp, meaning that expectations for next September are now almost 40bp lower than before the payrolls.”

“Meanwhile, the question is whether the market has gone a little too far in its correction. Yesterday's minutes of the September decision showed that there was certainly opposition to the 50bp cut, and recent comments from officials often suggest that they are not unhappy with the current state of the economy. Nevertheless, it seems unlikely that the Fed will pause at either of its next two meetings after cutting rates by 50 basis points. Moreover, payrolls are still trending slightly lower and last week's figure is likely to be revised several times. Therefore, the baseline scenario remains a 25 basis point cut at the next meetings.”