USD extends post-FOMC gains - Scotiabank

The US Dollar (USD) remains well supported as it extends this week's postFOMC gains with broad strength against all of the G10 currencies with the exception of JPY, Scotiabank's Chief FX Strategists Shaun Osborne and Eric Theoret report.

USD extending post-FOMC gains with broad strength vs. G10

"The yen is outperforming on the back of a hawkish hold from the BoJ, with a rare pair of dissents voting for a 25bpt hike to 0.75%. Gov. Ueda's tone was neutral, opening the door to a potential October hike while making no commitment in terms of the near-term rate path. The USD's latest gains appear to be fundamentally driven as we note a broad turn in interest rate differentials across most of the G10 currencies, reflecting a reassessment of the Fed's path in the aftermath of Wednesday's 'risk management' cut. The outsized reaction to Thursday's better than expected claims data have also revealed a market that appears vulnerable to a squeeze."

"The broader market's tone remains supportive of risk appetite, with US equity futures trading just below their record high as US yields tentatively extend their latest recovery with the 10Y well off its ~4.00% low and threatening a push to 4.15%. In commodities, both oil and copper appear to be responding to the USD's strength with notable post-FOMC weakness. Gold is showing signs of stabilization following a pullback from Wednesday's record high, and will be vulnerable to event risk as markets look to the Trump-Xi phone call scheduled for 9am ET."

"Concerns about a government shutdown remain elevated as we head into the weekend, as markets look to Friday's votes to fund the government past September 30. It remains unclear if Republicans' stopgap bill will receive support from Democrats. In terms of Fed risk, the FOMC's newest member is scheduled to appear on CNBC at 11am ET. Gov. Stephen Miran was a lone dissenter on Wednesday, opting to vote for a 50bpt cut against the 25bpts that was ultimately delivered. The SF Fed's Daly, a historically dovish policymaker, is also scheduled to speak on the topic of AI at 2:30pm ET. There are no US economic data releases scheduled for Friday."