Dollar Hits 2-Month High Ahead of Payrolls

Week of 28 SEPTEMBER

Bond markets set the tone this week. Treasury yields rebounded to their highest levels since 2007 as Fed officials lined up behind another rate hike, lifting the US Dollar Index to a two-month high. Meta was the standout in equities, rallying 17% on enthusiasm for its new AI assistant, while Donald Trump hosted Xi Jinping at the White House and the two sides extended their trade truce into January.

Next week opens October and the final quarter of the year, with a packed US calendar headlined by Friday's jobs report and Wednesday's PCE inflation data. Nike reports on Thursday with its shares at their lowest level since 2014.

Week in Review

The dollar climbed to a two-month high.

The US Dollar Index reached 101.40 on Thursday, its highest since late July. GBP/USD slid to a 12-week low near 1.32 and USD/JPY briefly topped 159, edging towards the 160 level where Japan intervened in 2024.

Treasury yields rebounded to fresh post-2007 highs.

The US 10-year Treasury yield dipped to 4.95% early in the week before surging above 5.2% on Thursday, while the 2-year Treasury yield hit a new cycle high near 4.9%. A hot flash composite PMI of 58.4 added fuel, but the main driver was the Fed. A week after its first hike in over three years, New York Fed President John Williams said it was "reasonable to expect one more increase this year". Futures now price around a 70% chance of an October hike.

Gilts followed suit.

The UK 10-year gilt yield climbed back towards 5.4%. Deputy Governor Clare Lombardelli, who voted to hold last week, warned that "policy is increasingly likely to need to tighten if elevated energy prices persist", keeping a November hike in play. A softer services UK PMI of 51.7 and higher-than-expected August borrowing of £18.3 billion added to sterling's woes.

Meta led an AI-driven rally in tech.

Meta jumped 11% on Monday after its Muse AI assistant topped Apple's US App Store, then extended gains through Wednesday's Connect event, where it launched new smart glasses alongside a wider Muse rollout. The stock finished Thursday up 17% on the week, within 3% of its record high. Alphabet fell nearly 4% on Wednesday on fears AI agents could bypass search. The Nasdaq 100 gained almost 3% and the S&P 500 0.7%, while the Dow slipped 0.6%.

UK stocks were steadier.

The FTSE 100 edged up around 0.5%, led by miners including Glencore and Anglo American, while BP and Shell lagged. Raspberry Pi surged 20% on record first-half results.

Trump and Xi kept things cordial.

Xi Jinping's White House visit produced a two-month extension of the trade truce to 10 January but no breakthrough on Iran or Taiwan. Markets largely looked through it.

Biggest Market Movers

• Meta (META) – jumped 17%, within 3% of its record high

• Alphabet (GOOGL) – fell nearly 4% on Wednesday

• NDQ100 – gained almost 3%

• USDX – hit a two-month high

• GBPUSD – fell to a 12-week low

• USDJPY – touched 159

• UKOIL – fell 4%

• XAUUSD – dropped 1.6%

• BTCUSD – gained 4%

• Raspberry Pi (RPI) – surged 20%

• Nike (NKE) – hit a 12-year low

Top Events in the Week Ahead

October gets under way with a heavy dose of US data that will show whether the economy is running hot enough to justify another Fed hike.

US Jobs Report and PCE

Payrolls will test the case for an October hike.

Friday's nonfarm payrolls report is forecast to show 100,000 jobs added in September, down from 162,000, with unemployment ticking up to 4.2%. Wednesday's core PCE index, the Fed's preferred inflation gauge, is expected to rise 0.3% on the month, with JOLTS and ISM manufacturing also due. Strong numbers would likely lock in an October hike.

Nike Earnings

Nike reports with its shares at a 12-year low.

Nike delivers first-quarter results after the US close on Thursday, with earnings per share expected around $0.44, down roughly 10% on the year. The stock has lost more than 40% this year and around 80% from its 2021 peak. CEO Elliott Hill needs to show his turnaround is gaining traction beyond cost cuts, with China and tariffs under scrutiny.

Bank of England Speakers

Bank of England hawks are out in force.

Dave Ramsden speaks on quantitative tightening on Monday, while hike dissenter Catherine Mann speaks on Tuesday and Thursday.

A New Quarter

October opens the final quarter of the year.

The fourth quarter has historically been the strongest for US equities, though October has a reputation for volatility.

Other Events and Earnings

Elsewhere, the RBA is expected to raise its cash rate to 4.6% from 4.35% on Tuesday. The UK publishes final second-quarter GDP on Wednesday, expected to confirm 0.4% growth, alongside Nationwide house prices, with Bank of England mortgage approvals on Tuesday and the final manufacturing PMI on Thursday. China's official PMIs and Germany's flash inflation land on Wednesday, followed by Japan's Tankan survey early Thursday. Eurozone flash inflation on Friday is expected to jump to 3.5% from 3.2%, adding pressure on the ECB.

On earnings, the UK focus falls on Tuesday, with Close Brothers full-year results, A.G. Barr half-year numbers and Carnival third-quarter results. Greggs follows with a third-quarter trading update on Wednesday, where investors want to see first-half sales momentum carry through the summer, and JD Wetherspoon closes the week with full-year results on Friday after July's profit warning. In the US, Micron reports on Wednesday ahead of Nike on Thursday.