Market Review, October 6: Dollar Strengthens as Euro Weakens and Oil Pulls Back

The currency is recovering some of the positions lost after Friday's statistics showed a weakening labour market. In September, the unemployment rate increased from 4.1% to 4.2%, while nonfarm payrolls rose by only 29.0K, below both the forecast of around 89.0K and August's downwardly revised 133.0K. Average hourly earnings growth also slowed from 0.3% to 0.1% month-on-month. Economists note that the situation continues to be characterised by low hiring and weak labour turnover.

These figures, together with the stabilisation of inflation in August — the Personal Consumption Expenditures price index rose 3.4% year-on-year instead of the expected 3.7%, while the core indicator reached 3.0% versus forecasts of 3.3% — allow Federal Reserve officials to remain cautious and potentially refrain from another interest rate increase in October. At the same time, according to the CME FedWatch Tool, markets continue to price in a high probability of a rate increase by the December meeting, currently around 87%.

Cleveland Federal Reserve President Beth Hammack, previously one of the more consistent supporters of hawkish policy, said after the employment report that policymakers still have time to assess the situation before making the next monetary policy decision. Chicago Fed President Austan Goolsbee, speaking to Fox Business, took a somewhat different view, noting that the data still point to a relatively stable labour market and that inflation remains the more important challenge. He said both a pause and another rate increase remain on the table, depending on whether incoming data provide evidence that inflation is moving back toward the 2.0% target.

As discussed in our previous market review, US labour-market data and expectations surrounding Federal Reserve policy remain among the key drivers of the dollar.

Eurozone

The euro is weakening against the yen, pound and US dollar.

The latest macroeconomic data showed that the eurozone Services PMI increased from 51.6 points to 53.0 points in September, while the Composite PMI rose from 52.0 points to 53.1 points. In Germany, the Services PMI increased from 49.7 points to 52.9 points, while the Composite PMI advanced from 51.8 points to 53.8 points.

The October Sentix Investor Confidence Index declined from 5.1 points to 2.7 points, below expectations of around 5.0 points. Sentix noted that the deterioration was largely caused by a significant weakening in investor expectations.

Meanwhile, Bundesbank President Joachim Nagel said eurozone inflation remains high and could continue rising, although higher energy costs have not yet produced significant second-round effects through wages. He added that longer-term inflation expectations remain broadly consistent with the European Central Bank's 2.0% target.

United Kingdom

The pound is strengthening against the euro, weakening against the US dollar and showing mixed dynamics against the yen.

The September Services PMI declined from 52.5 points to 52.1 points, remaining above forecasts of 51.7 points, while the Composite PMI fell from 52.5 points to 52.0 points compared with expectations of 51.7 points. Businesses reported increased price pressures amid higher fuel costs caused by the Middle East conflict, while the index measuring prices charged for goods and services reached its highest level since May.

In addition, The Times reported that the UK government is considering tariffs on Chinese electric vehicle imports amid concerns that their competitive pricing is partly supported by state subsidies. Business Secretary Jonathan Reynolds is reportedly preparing possible tariff options, although the government has stressed that no additional duties have yet been imposed. Analysts warn that such measures could provoke a response from Beijing and increase trade tensions between the two countries.

Japan

The yen is strengthening against the euro, weakening against the US dollar and showing mixed dynamics against the pound.

The Services PMI declined from 52.5 points to 51.3 points, below forecasts of 51.6 points, while the Composite PMI fell from 53.5 points to 52.3 points. Businesses reported that new orders continued to increase across key sectors of the economy, although the pace of growth slowed.

Meanwhile, seeking to reassure investors concerned about the country's fiscal position, Prime Minister Sanae Takaichi pledged to control government bond issuance and respond promptly to instability in financial markets. The comments came as long-term Japanese government bond yields remained under pressure from concerns about public debt, inflation and future fiscal spending.

Australia

The Australian dollar is strengthening against the euro, pound and yen while showing relatively firm dynamics against the US currency.

The Services PMI declined from 53.2 points to 51.9 points, above the preliminary estimate of 51.4 points, while the Composite PMI fell from 52.7 points to 51.3 points after a preliminary estimate of 50.8 points. The recovery in domestic business activity is therefore continuing, although at a slower pace than before, while stronger price pressures may allow the Reserve Bank of Australia to maintain a hawkish monetary policy stance.

On October 5, representatives of Japan and Australia signed a memorandum establishing an annual Finance Ministers' Dialogue aimed at deepening cooperation on financial and economic policy and strengthening bilateral coordination in the area of economic security. The framework will also cover energy security, critical minerals and resilient supply chains.

Oil

Oil prices are correcting lower.

Pressure on prices comes from the recovery in energy exports from the Persian Gulf. According to maritime tracking data cited by Reuters, oil flows in the second half of September recovered to around 18.3 million barrels per day, reaching or exceeding pre-conflict levels on a number of days. These flows include crude and condensate transported through the Strait of Hormuz and the Red Sea, as well as exports handled through regional terminals and ship-to-ship transfers in the Gulf of Oman.

Nevertheless, geopolitical tensions in the Persian Gulf remain elevated. At least seven attacks on tankers were reported during the first days of October, highlighting continued risks to commercial shipping even as physical oil flows recover.

In addition, according to Reuters sources, OPEC+ has postponed its review of member countries' production capacity, which will be used to determine 2027 output quotas. The assessment, originally expected to be completed by September, has been delayed until around mid-November after the Middle East conflict disrupted energy infrastructure, expansion projects and the collection of production data.