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Date: 4th September 2026.

Waller's Dovish Pivot Keeps the Dollar on the Back Foot Into Payrolls.


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Risk assets extended their advance overnight as traders further pared back the odds of a September Fed hike following dovish remarks from Governor Christopher Waller. The Dollar sits near multi-month lows, the Yen is having its best week since the July intervention, and havens like Gold are holding firm even as oil grinds higher on Middle East supply risk. All eyes now turn to today’s payrolls report to settle the debate.

USD: Payrolls Need to Shock to Change the Story

The Dollar’s slide has further to run unless today’s jobs report delivers a genuine upside surprise. Governor Waller told a Reuters NEXT event that he could support holding rates steady this month if incoming data confirms the disinflation trend already underway, a notable break from Chair Kevin Warsh's hawkish tone last week. He pointed to the Fed's preferred inflation gauge, core PCE, cooling to 3.7% in July from 4.1% in May, as evidence the trend is intact, and added that he doesn't expect payrolls to deviate much from the recent trend of a stable but unspectacular labour market.

Markets have listened. Pricing for a 25-basis-point September hike has fallen to roughly a coin flip, down sharply from the high 60s just a couple of days ago, and a broad Dollar index is trading at its softest levels since May. Consensus looks for around 56,000 jobs after last month’s shock decline, with unemployment seen steady at 4.1%, a number the Fed still reads as close to full employment. A print in line with or below consensus should keep the Dollar offered into the weekend; only a genuinely hot number is likely to revive hike bets meaningfully, given the Fed's stated focus is now squarely on the inflation side of its mandate rather than labour slack.

Treasuries have caught a bid alongside the Dollar’s weakness. Two-year yields are holding near 4.33%, off their 20-month highs, while the curve has bull-steepened as the front end outperforms. Ten- and 30-year yields have also eased modestly, though longer-dated paper remains hostage to inflation and fiscal-supply concerns that a single jobs report won't resolve.

JPY: Best Week Since the Intervention, but the Move May Be Maturing

The Yen has been the standout story this week, rallying as much as 2% in a single session and putting it on track for its strongest week since Japan and the US jointly intervened to arrest its slide. USD/JPY has pulled back from a low near 155.30 to trade around 156.30 as some of the move gets pared, but the underlying driver, rapidly rising conviction in a Bank of Japan hike this month, remains intact. Swaps now imply roughly a 75% chance of a September move, with an increase fully priced by October, and speculation is building that policymakers could even deliver back-to-back hikes or a larger single step.

Speculation that Japan’s pension giants, including the GPIF, may lean further into domestic bonds has also helped anchor the long end of the JGB curve, with super-long-term yields easing even as global yields stay elevated. That combination, a more hawkish BoJ and firmer demand for domestic duration, is a supportive backdrop for the Yen, though positioning is less stretched than during prior Yen squeezes, which argues for consolidation rather than an immediate extension towards the 150-152 area.

Commodities: Oil's Geopolitical Bid, Gold Steady

Brent crude is holding just above $95.50 per barrel and is on track for its biggest weekly gain since July, driven by renewed US-Iran tensions and fears of prolonged disruption to flows through the Strait of Hormuz. That geopolitical premium is one of the few forces working against the broader disinflation narrative the Fed is trying to build a case around. Gold, meanwhile, is consolidating near $4,470 per ounce after a 2% overnight rally, on course to finish the week roughly flat, a sign that havens are being supported more by real-yield declines than by any fresh flight-to-safety impulse.



Risk Sentiment: Equities Extend Gains, Asia Leads

The broader risk backdrop remains constructive. Wall Street’s rally on Waller's comments carried into Asia, where the regional equity gauge climbed around 1%, China's blue chips jumped 4%, and South Korea’s KOSPI rose 2%; Japan’s Nikkei 225 added 1.4% on the day but is still nursing a weekly loss of nearly 2% given the Yen's surge. Nasdaq and S&P futures point to a firmer US open, and European equities are set to open modestly higher too. Strategists caution that the picture is still finely balanced: with roughly two weeks to the Fed decision and mid-term elections looming, several see the risks to sentiment as skewed slightly to the downside from here, arguing for a degree of caution even as markets chase the dovish narrative.

What to Watch

Today’s US non-farm payrolls report (consensus 56,000, unemployment 4.1%) is the clear focus. A soft or in-line print should reinforce the Dollar-negative, Yen-positive, risk-on setup currently in place; a strong beat would revive September hike pricing quickly, given how far it has already fallen this week, and could trigger a sharper reversal in both rates and FX than the market is currently positioned for.

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Please note that times displayed based on local time zone and are from time of writing this report.

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Andria Pichidi
HFMarkets

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