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The U.S. dollar soared to a seven-week high following a strong September jobs report, which revealed a nonfarm payroll increase of 254,000—significantly surpassing expectations. This robust data prompted traders to reassess their views on Federal Reserve rate cuts, eliminating the likelihood of a 50-basis-point reduction. The dollar index reached 102.69, marking its best weekly performance since September 2022, while the euro slipped to $1.09515, and the dollar climbed to 149.02 yen. Additionally, safe-haven demand rose due to escalating tensions in the Middle East after Iran's missile strikes on Israel. Overall, the dollar's surge reflects a shifting market sentiment towards a more cautious Fed policy.

Key Highlights

# Dollar hits a seven-week high after strong jobs data.

# Nonfarm payrolls rose by 254,000, surpassing forecasts.

# Traders now anticipate fewer rate cuts from the Fed.

# Safe-haven demand boosts dollar amid Middle East tensions.

# Sterling dips following cautious Bank of England comments.

The U.S. dollar surged to a seven-week high, bolstered by a robust jobs report that indicated significant resilience in the labor market. The dollar index climbed to 102.69, marking its highest level since August 16. The nonfarm payrolls for September increased by 254,000, significantly outperforming the anticipated 140,000, prompting traders to reassess their expectations regarding Federal Reserve rate cuts. As a result, the dollar is on track for its best weekly percentage gain since September 2022.

Supporting the dollar's ascent, traders are now pricing in a reduced likelihood of aggressive rate cuts by the Fed. Earlier in the week, Fed Chair Jerome Powell's hawkish remarks further fueled the sentiment that the central bank would be cautious in its easing policy. The odds of a 50-basis-point cut for the upcoming meeting have evaporated, shifting expectations towards a more gradual approach to rate reductions. In contrast, Bank of America projects a 25-basis-point cut per meeting through March 2025.

Moreover, the dollar's strength was amplified by rising safe-haven demand due to escalating tensions in the Middle East. Concerns escalated following Iran's missile attacks on Israel, highlighting geopolitical risks that favor the dollar. Meanwhile, the euro fell to $1.09515, the lowest since August 15, while the dollar gained to 149.02 yen, driven by market reactions to Japan's monetary policy stance.

Finally

The combination of strong economic data and geopolitical tensions is fostering a bullish outlook for the dollar, shaping market expectations for the Federal Reserve’s future policy actions.

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