Forex

In the September US employment report released on the 2nd, the increase in nonfarm payrolls came in at 29,000 from the previous month, far below the expected 90,000 gain, and the unemployment rate also worsened to 4.2%, its first deterioration in seven months. However, the rise in the unemployment rate is seen as driven by an increase in people willing to work, and the average pace of gains over the past three months has held at about 50,000, so the dominant view is that the employment situation remains on a stable footing. Combined with the weak content and remarks by Fed Vice Chair Jefferson calling for cautious policy adjustment, expectations that the Fed will proceed with an additional rate hike at its meeting on the 27th and 28th of this month have receded, and the probability of a hike in the interest rate futures market has fallen from 70% at one point to 20% recently. Meanwhile, the surge in crude oil prices due to the US-Iran conflict pushed August inflation to 3.4%, far above the Fed's 2% target, and Cleveland Fed President Hammack stated plainly that "the concern is precisely inflation." In judging whether to raise rates further, the Fed plans to place weight on inflation indicators released going forward.

Several U.S. central bank officials signaled this week that the Fed still has time to assess economic data before deciding on another interest rate hike. Cleveland Fed President Beth Hammack said the September U.S. employment report was consistent with recent hiring trends and that she still has time to consider the direction of monetary policy. Hammack said in an interview on PBS NewsHour that September employment rose by only 29,000 jobs, while the unemployment rate edged up to 4.2%, and over the past 12 months employment has risen by an average of 41,000 jobs per month, which is close to the level she estimates to be the breakeven point for the labor market, reflecting that the labor market appears to be stabilizing. She said the Fed will receive much more data before its meeting late this month, so there is still time to decide what the appropriate course of monetary policy should be so that the Fed can achieve both sides of its mandate: maintaining price stability and promoting maximum employment. Hammack is one of the Fed officials who has consistently supported raising interest rates to control inflationary pressures that she and other Fed officials view as still elevated. Last month, the Fed raised its target interest rate range by 0.25% to 3.75%-4%, with Fed officials expecting another rate hike before the end of the year. However, comments from Fed officials this week indicate that the Fed is likely to hold off on rate action at the Federal Open Market Committee meeting scheduled for Oct. 27-28.

The Bank of Thailand is preparing to strictly prohibit payment service providers from accepting payments for grey businesses and online gambling platforms, with an announcement to be published in the Royal Gazette within the next week. According to Bank of Thailand Governor Vitai Ratanakorn, the central bank is advancing a strategy to create bottlenecks that block illegal transactions, which have dragged Thailand's economic growth forecast down to only about 2.3% in 2026. Previous tightening measures have reduced cash withdrawals exceeding 1 million baht by more than 50%, to 50 billion baht per month from 100 billion baht per month, and physical gold withdrawals exceeding 2 kilograms have fallen by more than 70%. Meanwhile, trading of the USDT stablecoin has surged abnormally by several hundred billion USDT over the past 4 to 5 months, with behaviour observed of withdrawing or transferring funds in to buy and then immediately transferring them out to foreign countries under other people's names, suggesting intent to launder money. The Bank of Thailand has therefore designated 24 suspicious transaction patterns for financial institutions to use in detection, and is raising the level of KYC, CDD and EDD for high-risk groups. It has also joined with the Thai Bankers' Association and 11 financial associations under its supervision, covering non-bank groups, payment service providers, foreign exchange service providers and money transfer service providers, in signing a declaration of intent to close the door and prevent the financial system from serving as a channel for informal money and corruption in the long term.

Karl Schamotta, chief market strategist at Kobeissi, noted that a sharp slowdown in US job creation in September has strengthened market expectations that the Federal Reserve will pause its monetary tightening in October. As traders price in a slower pace of rate hikes over the coming months, the dollar has fallen and US Treasury yields have declined, mainly in the short end of the curve. According to Schamotta, market moves remain limited at this stage because of an asymmetry in the Fed's reaction function. The breakeven level for employment is seen at about 50,000 jobs a month, and for Fed officials inflation is by far the bigger concern.

The dollar weakened against major currencies, in line with the decline in US government bond yields, after the US reported sluggish employment figures, which will support the Federal Reserve in holding interest rates steady at this month's monetary policy meeting. At 9:38 pm Thailand time, the dollar index, which measures the dollar's movement against six major currencies in a basket, fell 0.38% to 101.71, while the dollar weakened 0.34% to 1.128 against the euro and dropped 0.36% to 157.51 yen. The US Labor Department reported that nonfarm payrolls rose by only 29,000 in September, below analysts' forecast of 89,000. The unemployment rate rose to 4.2%, while analysts had expected it to hold steady at 4.1%. The Labor Department also revised August payrolls to an increase of 133,000 from a previously reported gain of 162,000. The private sector added 46,000 jobs in September, while government employment fell by 17,000. Meanwhile, average hourly earnings rose 3.0% in September from a year earlier, below analysts' forecast of 3.2%, and edged up 0.1% month on month, below the expected 0.3%. The yield on 30-year US government bonds fell to 5.570% after earlier surging to its highest level since 2002, while the 10-year yield fell to 5.180% after hitting its highest since 2002 this week, and the 2-year yield fell to 4.730%. Investors increased their bets that the Fed will hold rates steady at its October meeting following the sluggish employment data, having previously expected a rate hike this month. The latest FedWatch Tool from CME Group indicates that investors assign an 83.9% probability to the Fed holding rates at 3.75-4.00% at the October meeting, up from just 35.8% a week earlier. In addition, investors assign a 16.1% probability to the Fed raising rates by 0.25% to 4.00-4.25% at the October meeting, down from as much as 64.2% a week earlier.

MUFG analysts Lin Li, Michael Wan, Lloyd Chan and Khang Sek Lee say the Reserve Bank of India's finely balanced decision on 7 October will drive Asia FX, with the central bank expected to keep tightening risks alive. The MUFG team frames the RBI's upcoming policy call as the key catalyst for regional currency markets. The analysts did not specify the size or direction of any expected rate move, only that the decision is finely balanced. The 7 October meeting is the focal point for their Asia FX outlook.

The Dow Jones Industrial Average surged more than 400 points today, buoyed by a decline in U.S. Treasury yields after the release of lackluster employment figures, which is expected to support the Federal Reserve in holding interest rates steady at this month's monetary policy meeting. As of 8:48 p.m. Thailand time, the Dow Jones Industrial Average was up 453.47 points, or 0.89%, at 51,380.03. The U.S. Labor Department reported that nonfarm payrolls rose by only 29,000 in September, below analysts' forecast of 89,000, while the unemployment rate rose to 4.2%. The Labor Department also revised August payrolls to an increase of 133,000 from the previously reported gain of 162,000. The yield on the 30-year U.S. Treasury bond fell to 5.570% after earlier surging to its highest level since 2002. The yield on the 10-year Treasury note fell to 5.180%, and the 2-year yield fell to 4.730%. Most recently, the CME Group's FedWatch Tool indicated that investors now assign an 83.9% probability to the Fed holding rates at 3.75-4.00% at its October meeting, up from just 35.8% a week ago.

US government bond yields fell today after the release of weak employment figures, which would support the Federal Reserve in holding interest rates steady at this month's monetary policy meeting. The yield on the 30-year US Treasury note dropped to 5.570% after earlier surging to its highest level since 2002. The yield on the 10-year US Treasury note, the main benchmark for setting interest rates on mortgages, auto loans and credit card debt, fell to 5.180% after climbing this week to its highest level since 2002. The 2-year yield, which often moves in line with the Fed's policy rate decisions, fell to 4.730%. Investors sharply increased their bets that the Fed will hold rates at its October meeting following the weak jobs data, having previously expected a rate hike this month. The latest CME Group FedWatch Tool shows investors pricing an 83.9% probability that the Fed will keep rates at 3.75-4.00% at the October meeting, up from just 35.8% a week ago, and a 16.1% probability that the Fed will raise rates by 0.25% to 4.00-4.25%, down from as much as 64.2% a week ago. The US Labor Department reported that nonfarm payrolls rose by only 29,000 in September, below analysts' forecast of 89,000. The unemployment rate rose to 4.2%, while analysts had expected it to hold steady at 4.1%. The Labor Department also revised August payrolls to an increase of 133,000 from a previously reported gain of 162,000. Private-sector employment rose by 46,000 in September, while government employment fell by 17,000. Average hourly earnings rose 3.0% in September from a year earlier, below analysts' forecast of 3.2%, and edged up 0.1% from the previous month, below the expected 0.3%. The US labor force participation rate, which shows the share of the population in the workforce, stood at 61.8%.

Standard Chartered Global Research judges that the odds of an October European Central Bank rate hike are limited. The team notes that core inflation in the Euro area has only edged up slightly since January. It also warns that higher yields pose downside risks to both growth and inflation. On that basis, the authors expect the Governing Council to wait for new macroeconomic projections at its December policy meeting before acting.

Dow futures jumped more than 200 points, buoyed by a sharp drop in oil prices that eased investors' inflation worries. As of 7:17 p.m. Thailand time, Dow futures were up 222 points, or 0.43%, at 51,463. Brent crude fell below $100 a barrel and West Texas Intermediate crude slid below $90 a barrel after reports that Europe and members of the International Energy Agency, or IEA, are preparing to release oil into the market under pressure from the United States. November-delivery West Texas Intermediate crude fell $3.49, or 3.76%, to $89.38 a barrel, while December-delivery Brent crude dropped $2.45, or 2.39%, to $99.86 a barrel. Reuters reported, citing sources, that European Union member states met today, October 2, to discuss a French proposal to release diesel from emergency stockpiles in response to U.S. pressure for European nations to help slow the surge in fuel prices. The proposal calls for European countries to release 50 million barrels of diesel and for members of the International Energy Agency, or IEA, to release another 50 million barrels of crude. The United States is asking major European nations, including France and Germany, to release 100 million barrels of diesel within a 20-day window, and U.S. President Donald Trump is weighing the possibility of banning U.S. diesel exports ahead of the November 3 midterm elections. The IEA, which has 32 member countries, agreed in March to jointly release 400 million barrels of strategic reserves, the largest such release in history, and IEA Executive Director Fatih Birol said member countries have already released about two-thirds of the agreed total. Meanwhile, the U.S. Labor Department will release September nonfarm payrolls today, with analysts expecting job growth of 89,000 in September, down from 162,000 in August, and the unemployment rate expected to hold steady at 4.1% in September.

Citi warned on Friday that bond market volatility has entered a more dangerous phase for risky assets, with the latest selloff driven by the long end of the curve rather than Fed expectations. The bank said the MOVE index broke above two standard deviations on a one-year lookback last Thursday, a day after strong PMI data and a weak auction pushed the 10-year Treasury yield above 5%. Citi noted that high MOVE readings have historically coincided with weakness in the S&P 500, though the index has typically fallen back below that threshold within days and calms once investors work out the Fed's hiking cadence, usually about two months after the first hike. Citi said that comfort relies on monetary policy being the driver, and its rates strategists pointed to a buyer's strike that has made auction weeks notably worse than normal. The bank's best guess is that the neutral rate is moving higher alongside a strong growth outlook, and it sees no clear catalyst to break the buyer's strike in the short term, suggesting MOVE could stay elevated. Beneath a steady S&P 500, Citi noted small caps have sold off more sharply.

US Treasury Secretary Bessent made concrete demands on the government and the Bank of Japan, calling for accelerated rate hikes, a shift away from reflationary policy, and a halt to the yen's slide, and the dollar-yen rate strengthened sharply from its recent peak near 163 yen all the way to the 152-153 range. In a speech at a Texas university on the 8th, Secretary Bessent told yen-bearish speculators, "Bet on a weaker yen. I'm the bookmaker," signaling his intention to seize the initiative in the market and drive the yen higher and the dollar lower, throwing down a challenge to speculators. If Japan's long-term interest rates exceed 3%, institutional investors will sell US Treasuries and switch into Japanese government bonds, driving up US long-term rates and interest payment costs, so the Treasury Secretary appears to be trying to slow or stop Japan's rapid rate rises and the yen's depreciation. Some point to the possibility of a "mini Plaza Accord" that pushes the exchange rate into the 140-yen and 130-yen ranges, with the FOMC on September 15 and 16 and the Bank of Japan's monetary policy meeting on September 17 and 18 in focus. The Bank of Japan will likely raise rates by 0.25%, and if the Federal Reserve does not raise rates, the narrowing interest rate differential between Japan and the US will push the yen even higher. For now, the battle continues around the 152 level, which represents the halfway retracement of the yen's decline from 139.89 yen on April 22 last year to 163.95 yen on July 24 this year.