North American traders return from holiday to continue betting on the US dollar. The US dollar index has risen for five consecutive days

According to the financial news app Zhitong Finance, the US Dollar Index, which measures the strength of the US dollar against a basket of major currencies, has rebounded for five consecutive trading days. Traders in the North American financial markets have returned from the "Labor Day" holiday to welcome a new week of economic data, betting that the dollar is likely to continue its recent rebound driven by these economic data. On Monday, the US and Canadian stock markets were closed for the Labor Day holiday, and traders in the North American financial markets also took a day off on Monday.

The latest trading data shows that on Tuesday, the US dollar rose against most G10 currencies, with the Bloomberg Dollar Spot Index up 0.2% and the ICE Dollar Index up 0.1%. Among the major sovereign currencies, the Australian dollar performed poorly, mainly due to a drop in iron ore futures prices and key input projects in the country's gross domestic product falling below economists' expectations.

Investors and professional traders are eagerly awaiting US economic data, including manufacturing data to be released on Tuesday, service sector data on Thursday, and the crucial non-farm payroll data and unemployment rate data on Friday. This data will help determine whether the financial markets' pricing of the Federal Reserve's interest rate cuts is reasonable, and any changes in this pricing will affect the overall trends of major financial assets such as the dollar, gold, stocks, and bonds.

Derivatives market traders are generally betting that the Federal Reserve will cut its benchmark interest rate by 25 basis points this month, with the probability of this rate cut exceeding 60%. However, traders are still betting that the Fed is likely to cut rates by 100 basis points before the end of the year, meaning there is a chance of a 50 basis point rate cut at one of the meetings from September to December.

Market strategists at Malayan Banking Bhd led by Saktiandi Supaat wrote in a report, "If US manufacturing data unexpectedly improves and stimulates a more substantial repricing of Fed rate cut bets, traders may still be inclined to further bullish on the dollar." "The August non-farm payroll report to be released on Friday is still the elephant in the room."

Frances Cheung, Head of FX and Rates Strategy at Oversea-Chinese Banking Corporation in Singapore, said, "We expect US Treasury yields to see a moderate rebound, which will lead to a rebound in the dollar." "As investors await labor market data, employment and unemployment data meeting expectations may be enough to temporarily reduce market expectations of Fed rate cuts for the year."

It is understood that Wall Street forex traders and economists are generally betting that the US non-farm payroll data for August, to be released later this week, is expected to show a significant improvement from July. This could increase downward pressure on sovereign currencies such as the euro, Australian dollar, and Japanese yen, as improved employment data may ease expectations of significant Fed rate cuts in the coming months, potentially reducing bets on a 100 basis point rate cut by 2024 to around 75 basis points. This would help the recent rebound of the dollar to continue its upward trend and suppress the rise of the euro, the world's second largest reserve currency Economists generally expect that the number of new non-farm jobs in the United States in August is expected to rise to 163,000, and the unemployment rate may drop from 4.3% to 4.2%, the first decline since March. Some analysts also believe that if the U.S. labor market unexpectedly deteriorates more than economists expect, it may ultimately prompt the Federal Reserve to cut interest rates by 50 basis points in September.

Morgan Stanley analyst Sam Coffin recently pointed out in a report to clients that one of the main reasons for the 4.3% unemployment rate in July was the unusually high number of temporary layoffs. As Texas gradually recovers from the layoffs caused by Hurricane Beril, the labor market is not expected to repeat the "disaster" of July. Coffin's team at Morgan Stanley predicts that the unemployment rate in August will drop to 4.2%, and the number of new non-farm jobs is expected to increase to 185,000.

Some foreign exchange traders are still questioning whether U.S. economic growth and inflation data have slowed enough to prompt the Federal Reserve to announce a 50 basis point rate cut at the meeting on September 17th and 18th. A series of recent economic data, including upward revisions to GDP data, suggest that the possibility of a "soft landing" for the U.S. economy is becoming increasingly likely. Market expectations for rate cuts have decreased from around 125 basis points after the July non-farm data to around 100 basis points, which has been one of the two core drivers behind the sharp rebound of the U.S. dollar, pushing the dollar index up for five consecutive days.

In a recent research report on the future trend of the U.S. dollar, analysts at HSBC, including Daragh Maher, pointed out that the current exchange rate relative to the U.S. interest rate market is underestimated, indicating that the dollar may experience a major rebound. "Unless the economy actually experiences a catastrophic deterioration, the Fed's actual policy actions may not be as loose or looser than the market currently expects," wrote the HSBC analysts.

Elias Haddad, Senior Market Strategist at Brown Brothers Harriman, stated that a more stable August employment data may reduce the possibility of the Federal Reserve cutting interest rates by 100 basis points before the end of the year. Haddad said, "If this week's U.S. employment data shows a more optimistic outlook for a soft landing, this will be favorable for the dollar and lead to a reduction in net long speculative positions in the euro."