USD: Payrolls may finally start softening The post-FOMC bias has been markedly bearish on the dollar, and despite the US payrolls risk event today, markets have continued to squeeze USD long positioning yesterday and overnight. The yen remains a major contributor to the soft dollar momentum. Earlier this week, we noted how USD/JPY was showing the same kind of dynamics around and straight after FX intervention in September 2022, when the pair had steadily ground higher in the period after Japan intervened to support the yen. However, the second round of JPY intervention in one week, deployed after a less hawkish than expected FOMC on Wednesday, has sent markets the message that the Ministry of Finance is less tolerant of a post-intervention depreciation of the yen this time. With the help of a rally in short-term USD swaps, USD/JPY is trading just below 153 this morning, around 4.5% below its 160 peak on Monday. Today’s US payrolls are a huge event for markets, as the details in the jobs report will be a key test to more optimistic bets on Fed rate cuts after Chair Jerome Powell defied the hawkish repricing of the USD curve. Fed funds futures are now again pricing in a rate cut in November, with the September contract showing -20bp and the July one -10bp. The dollar 2-year swap rate is down to 4.80% from 4.95% pre-FOMC, and applying material downside pressure on the dollar.