Intervention stems the dollar tide for now; US payrolls ahead

During yet another tumultuous week in financial markets, the dollar has dropped back over the past couple of days after intervention by the BoE (in the gilt market) and the PBOC (in the renminbi) provided a degree of relief across equity, bond, and currency markets. The greenback’s rally looks increasingly stretched and we think there is scope for further consolidation. But with Fed officials continuing to bang their hawkish drum, the key underlying driver of the dollar’s strength remains intact and the risk of a continued self-reinforcing dollar melt-up is high. At this point, significantly weaker US data (or an accident in US financial markets akin to this week’s Gilt meltdown) look like the only things which might change the FOMC’s mind. While we expect next week’s US payrolls and the ISM surveys to be relatively strong, but our sense is that the “Fed pivot” is creeping closer.