USD had its strongest weekly increase in 2 years

Closing the session on October 4, the Dollar Index – measuring the strength of the greenback against a basket of big names – increased 0.5% to 102.49 points. This is the highest level since mid-August. For the whole week, this index increased by 2.1% – the best since September 2022.

The USD increased in price after the US yesterday announced an optimistic September employment report. The world’s largest economy created 254,000 new jobs, much higher than the forecast of 140,000 that economists gave in a previous Reuters survey. The unemployment rate also unexpectedly decreased, from 4.2% in August to 4.1% in September.

“The jobs report is very good. The scenario that the US still grows despite high interest rates is more feasible than ever,” said Karl Schamotta – market strategist at Copay (Canada). The US Federal Reserve (Fed) will therefore be more cautious in loosening monetary policy.

Chicago Fed President Austan Goolsbee called the September jobs report “excellent”. If there were more similar data, he would be more confident that the economy is at full employment with low inflation.

Recent optimistic economic data and Fed Chairman Jerome Powell’s “not in a hurry to cut interest rates” comment on Monday caused investors to reduce bets on the possibility of the Fed lowering interest rates by another 50 basis points. (0.5%) next month. CME FedWatch interest rate tracker shows the market currently expects this probability to be just 31%. The most likely scenario is a 25 basis point reduction. A small group of investors even think that the Fed will keep interest rates unchanged.

The US dollar yesterday also rose to a 7-week high compared to the euro and yen. Each USD is currently exchanged for 149 yen. Meanwhile, each euro is equivalent to 1.09 USD. For the whole week, the US dollar also recorded its strongest weekly increase in 15 years compared to the yen.

The USD strengthened this week mainly due to the need for shelter as tensions in the Middle East heat up. On the night of October 1, Iran fired nearly 200 ballistic missiles at Israel, marking the second raid on long-time rival territory in the past 6 months, in revenge for the deaths of leaders of Hamas, Hezbollah and Iran’s Islamic Revolutionary Guard Corps (IRGC).

The raid took place despite warnings from Israel and the US, causing major fluctuations in both the world gold and crude oil markets. Oil prices this week recorded the strongest increase in a year, when both key oils, Brent and WTI, increased more than 8%. Gold price on October 4 at one point reached nearly 2,670 USD per ounce, then turned down.

On the US stock market, Wall Street also increased yesterday after the September employment report. DJIA set a new peak at 42,352 points, closing the session up 0.8%. The S&P 500 and Nasdaq rose 0.9% and 1.2%, respectively.

Bank of America currently forecasts that the Fed will reduce interest rates by 25 basis points in each meeting from now until March 2025. The frequency will then be 25 basis points per quarter until the end of 2025.