The dollar is trading slightly softer this morning after last week’s rebound. Performance was choppy yesterday owing to a decent set of US economic figures which reversed initial losses in the greenback.

Interestingly, we had a bunch of robust numbers from the US yesterday which continues to support the view that the US is not near a recession. The ISM manufacturing for October came out stronger than expected with the headline index keeping in the expansionary territory at 50.2 Notably, the prices paid index declined sharply but labor market conditions remain quite tight.

September job openings in the JOLT report rose and August openings were revised higher while demand for US workers rebounded.

This shows a still healthy labour market and is another example of data not helping the “Fed pivot” theme, thus keeping the greenback supported for the time being.

Markets focus on Fed rate decision and guidance

All eyes are now on the penultimate FOMC meeting of another tumultuous year which finishes later today with the rate decision due to be published at 18.00 BST.

The market has fully locked in a fourth consecutive jumbo-sized 75bp rate hike so the language and tone of the statement and Chair Powell’s press conference will be key for near-term price action and market direction further out. Any hints about guidance for future rate hikes and if we are really going to get that fabled “Fed pivot” will be seized upon.

If Powell does confirm more of a cautious bias towards jumbo-sized rate hikes in December and the new year, the dollar will get sold into heavily.

The DXY is currently trading around the 50-day simple moving average at 111. Strong support below this should come in the form of the mid-July high at 109.14.

Markets have already baked in a small “pivot” with around 62bps of a rate hike at the December meeting. This means that traders are torn right between a smaller half-point rate rise and an unprecedented fifth 75bp move in a row.

It would appear then that a hawkish surprise is also still possible.

This could come in the form of a potential slowing of the pace of hikes, but with strings attached. A data-dependent Fed would soon come up against this Friday’s non-farm payrolls report and next week’s US CPI data. Given the tendency of inflation to surprise to the upside, investors may help underpin support for the dollar in the short term.

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