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Control of Congress is up for grabs, and the outcome will shape rates, equities, and the dollar into year-end. Join BBH’s Elias Haddad and Scott Clemons where they will cover the potential impacts.
Friday, 2 Oct | 30 Minutes, Zoom
07:00 PDT | 10:00 EST | 15:00 GMT | 16:00 CET
- US jobs and PCE to reinforce Fed’s hawkish bias.
- RBA set to resume hikes.
- Eurozone CPI to back more ECB tightening.
The USD index (DXY) rallied to near a one-month high last week. USD can continue to benefit from widening US-G6 interest rate differentials and rising US longer-term real yields. The break in the 10-year Treasury yields above 5.00% is driven by higher real yields rather than a breakout in the 5y5y inflation swaps, reflecting the remarkable resilience of US economic activity.
Still, tightening by other major central banks limits policy divergence with the Fed and suggests DXY could struggle to sustain an overshoot of its June 24 high at 101.80. Even so, US economic growth outperformance and strong foreign appetite for US securities can override that upside USD constraint.
The US composite PMI outpaced the Eurozone, UK, and Japan in September, supporting the dollar’s yield advantage. Meanwhile, in the twelve months to July, foreign investors accumulated $1754bn of long-term US securities (treasury bonds & notes, corporate bonds, equities, gov’t agency bonds), more than twice the -$743bn US trade deficit. That points to solid underlying demand for USD.
This week: the US September labor market and August PCE data will likely reinforce the Fed’s hawkish bias; The RBA is poised to resume tightening; Eurozone September CPI is seen backing the case for additional ECB hikes; China’s September PMIs should remain consistent with a soggy growth outlook; and Japan’s Q3 Tankan business survey will be key to the BOJ’s tightening path.
US Job Market in Good Shape, PCE Inflation Too Hot
September nonfarm payrolls (NFP) take the spotlight on Friday. Consensus is for NFP gains of +90k vs. +162k in August. The unemployment rate is expected to remain at 4.1% for a third consecutive month, in line with the FOMC 2026 projection and indicative of an economy near full employment.
August JOLTS report (Tuesday) should remain consistent with the US labor market’s low hire, low fire backdrop. September ADP private payrolls (Wednesday) are seen at +72k vs. +38k in August. There is no consensus estimate for September Revelio Labs employment (Thursday), but in August it showed the economy added +36.5k jobs. According to Revelio Labs, its non-farm employment data has a 0.74 correlation coefficient with the NFP survey.
US August PCE (Wednesday) to show sticky underlying inflation and a rebound in consumer spending. Headline PCE is seen rising 0.4% m/m vs. 0.2% in July and be unchanged at 3.7% y/y. Core PCE is expected to rise 0.3% m/m vs. 0.2% in July and remain at 3.3% y/y for a third straight month. Real personal spending is expected at 0.5% m/m vs. 0.0% in July.
Of note, the August PCE print will include annual revisions and changes to how several components, like portfolio management fees, are calculated. That could muddy the signal from the data.
EU Inflation Check
Eurozone September preliminary CPI inflation expected to quicken (Friday). Headline CPI is forecast at 3.7% y/y vs. 3.2% in August on higher energy prices, while core CPI is seen rising to 2.5% y/y vs. 2.4% in August. Above target inflation and a firmer growth outlook give the ECB scope to deliver more hikes.
The swaps curve implies nearly 100bps of tightening to 3.50% in the next twelve months. That would leave the policy rate above the ECB’s 1.75% to 3.00% neutral range estimate and limits EUR/USD downside, provided the June 24 low of 1.1325 holds.
RBA: Another Hike Up Its Sleeve
The RBA is widely expected to deliver a 25bps hike to 4.60% after pausing tightening the last two meetings (Tuesday). Australia July CPI inflation ran hot, and household spending was strong over Q2. Moreover, the RBA August 11 meeting Minutes noted that “Several members judged that it was quite possible that the upside risks to the inflation forecast would crystallise, requiring some further tightening.”
There are no fresh economic forecasts associated with this meeting, leaving the statement and Governor Michele Bullock’s press conference in focus. Australia’s August CPI print (Wednesday) could be a bigger driver of RBA rate expectations than the policy decision. RBA cash rate futures imply 90% probability of a 25bps hike this week and a total of 65bps of tightening in the next twelve months.
Additional RBA rate increases limit policy divergence with the Fed and offer AUD/USD support. Moreover, Australia’s strategic exposure to commodities linked to energy, AI, and defense remains an important long-term tailwind for AUD.
