Dollar on the Rise: Strong Labor Market Data Supports US Currency

The US dollar is currently in top form, approaching a two-month high against major currency competitors. The backdrop to this strength is the markets' more confident stance regarding the Federal Reserve's patient monetary policy. The strong dollar performance is mainly supported by last month's unexpectedly positive employment data. The Dollar Index, which tracks the greenback against six major currencies, has been able to stabilize after rising to its highest level since mid-August. At the same time, the euro remains near its lowest point since mid-August, while the dollar is aiming for its strongest level against the Japanese yen since August. Financial analyst Kyle Rodda from Capital.com sees the "U.S. exceptionalism trade" reinvigorated by robust employment figures. The latest Fed meeting minutes also confirm the central bank's focus on strengthening the labor market. However, a surprisingly high Consumer Price Index (CPI) could force the Fed to reconsider its inflation forecasts. The President of the San Francisco Fed, Mary Daly, expressed less concern on Wednesday evening over a renewed inflation spiral than over the potential impacts on the labor market. According to the FedWatch Tool by CME Group, traders now expect an 80% chance of an interest rate cut at the next Fed meeting in November. While the Dollar Index shows little change at 102.86, the greenback recorded a slight loss against the yen but remains close to its recent high. The euro remains almost unchanged, while the Australian dollar slightly declines and the New Zealand dollar struggles to recover losses.