US Dollar Index (DXY) scales weekly highs above 102.00 as October's NFP release approaches

• Risk aversion gathers pace, lifting the DXY’s recovery to weekly highs just above 102.00.
• A technology-led slump in global equities drives demand for safety, helping the US Dollar outpace its peers.
• Expectations of a robust US NFP reading later in the day are building after a series of encouraging labour market releases this week.

Risk-averse sentiment is putting the US Dollar (USD) ahead of other major currencies on Friday, with a technology-led equity sell-off and hopes of a strong US Nonfarm Payrolls (NFP) report later in the day lending support. Up 0.4% so far in the session, the US Dollar Index (DXY) has touched weekly highs just above 102.00. 

A sharp global equity sell-off has left investors firmly defensive on Friday. Chipmakers’ shares have come under selling pressure amid concerns that the Democrats’ victory in the US midterm elections will lead to stricter AI-sector regulation and delay plans for new data centres.

Can the Fed’s jobs assessment support the Dollar amid defensive FX positioning?

Attention on the economic calendar now turns to October’s US Nonfarm Payrolls report, with employment forecast to rise by a net 65K after September’s 29K increase. Expectations of an upside surprise in Friday’s NFP release have strengthened following better-than-expected labour market readings earlier this week, from Wednesday’s ADP Employment Change Report to Thursday’s weekly Jobless Claims.

For ING analyst Chris Turner, a “decent jobs number today will confirm the Fed's understanding that the US jobs market is 'solid' and could provide some support to short-dated rates and the Dollar.” 

Taking a broader view, Turner notes that “US short-dated rates have fallen close to 50bp since late September and the Dollar's yield advantage over other major pairs has softened a little,” while cautioning that there is still no clarity on “whether this tech sell-off leads to a broader re-assessment of the US growth and inflation trajectory.”