Considering the current strengthening of the US dollar

■ The overall US employment indicators released this week are sluggish. A September interest rate cut is expected, but the US dollar remains strong.  

■ In the short term, focus should be on the low US dollar index and the expected volatility of the upward trend to assess if the US dollar's strength is sustainable.  

 
A series of employment-related indicators released by the United States this week showed that (1) the employment index, a sub-index of the August ISM business climate index, recorded 43.8 for manufacturing and 46.5 for non-manufacturing, both below the expansion threshold of 50 for seven and three months respectively; (2) the July Job Openings and Labor Turnover Survey (JOLTS) indicated 7.18 million job vacancies, down 180,000 from the previous month; (3) August ADP private sector employment increased by only 54,000 month-over-month, showing a slowing growth pace. These data confirm that employment growth momentum is weakening. 

 
The U.S. Department of Labor's employment report, scheduled for release on the 5th, is expected to show a month-over-month increase of just 75,000 non-farm payrolls (NFP), marking the fourth straight month of growth below 100,000. The unemployment rate is forecasted to rise to 4.3%, up 0.1 percentage point, and average hourly earnings are expected to slow to 3.7% year-over-year. If the results meet market expectations, it will reinforce the view of ongoing labor market adjustments, and the Federal Reserve (FRB) is likely to cut interest rates by 0.25% at the Federal Open Market Committee (FOMC) meeting on September 16-17. If the data falls short of expectations, market bets for a significant or continued rate cut, implying an accelerated easing pace, will increase. However, the release of the annual benchmark revision for employment statistics covering March 2025 on the 9th makes it difficult to determine the overall employment trend solely from this report. 

 
Although the 2-year and 10-year Treasury yields have decreased to their lowest levels since May, the USD/JPY pair has continued to strengthen from its high of 146 yen this week, briefly reaching the 149-yen range on the 3rd. The dollar's unexpected strength can be attributed to political instability in Japan and France, increased concerns over fiscal discipline, and support from the depreciation of European currencies, such as the yen and the euro. In this context, the US dollar index hovers near the low 98s, and a breakout in either direction remains a concern. Meanwhile, in the foreign exchange options market, the one-month expected volatility of USD/JPY stays around 9.7%, raising questions about whether it will sustain its rise or retreat. Technically, breaking above the three-day high of 149.13 yen would complete a 61.8% rebound from the August decline, potentially leading to a return to the August 1 high of 150.91 yen and a full recovery.