Newsletter · 2026-10-05 · Ashutosh Agarwal

Weak Jobs Report Fails to Dent a Resilient Dollar - The Dollar Brief - Week of October 5, 2026

The Dollar Brief for the week of October 5, 2026 (podcasts published October 2 to 5): September payrolls came in at 29,000 against an 84,000 estimate and October Fed hike odds collapsed, yet the dollar index closed up 0.9 percent on the week and the 10-year yield rose to 5.28 percent, while practitioners from Marc Chandler to Brent Donnelly debated whether a dollar rally now in its seventh inning is close to a top.

The Dollar Brief

Week of October 5, 2026: Weak Jobs Report Fails to Dent a Resilient Dollar

Friday's jobs report was weak. On paper, that should have hurt the dollar.

The US added just 29,000 jobs in September, against forecasts of about 84,000. Wage growth slowed to a crawl. Traders who had been betting on a Fed rate hike this month mostly gave up on it.

The dollar dipped for a few hours, then got back up. By the close, the dollar index was up 0.9% on the week, and the 10-year Treasury yield had finished higher than where it started, at 5.28%.

Marc Chandler of Bannockburn Capital Markets summed it up on The KE Report on Friday: "U.S. interest rates have pulled back. Expectations for the Fed to tighten in October have pulled back. The dollar, on the other hand, remains fairly resilient."

So the question for this week: if a bad jobs number can't knock the dollar down, what can? One of the sharpest currency traders on the podcast circuit thinks we're close to finding out. Brent Donnelly says the dollar rally is in "the seventh inning," and he's watching for a reason to bet against it.

(Quick glossary. The "DXY," or dollar index, measures the dollar against six major currencies, mostly the euro. A "yield" is the interest rate on a bond; it rises when the bond's price falls. A "basis point" is one-hundredth of a percentage point. "Real" rates are interest rates after subtracting expected inflation. The "term premium" is the extra yield investors want for tying money up in long-term bonds. "Repo" is the overnight lending market where banks and funds borrow cash against Treasury bonds. "Carry" is the income you earn just from holding a bond or currency while you wait.)

TL;DR

The jobs miss was clear. September payrolls came in at 29,000 against an 84,000 estimate. Revisions cut another 60,000 from July and August, unemployment rose to 4.2%, and hourly wages rose just 0.1% (Squawk on the Street, Oct 2).
Odds of an October Fed hike fell from about 70% early last week to nearly 14% on Friday morning, then bounced back to 23%. Markets still see 85% odds of a hike by year-end, most likely in December (Schwab Market Update, Oct 5).
Bonds sold off anyway. The 10-year fell to 5.17% right after the report, then closed the week at 5.28%, up 10 basis points. Peter Schiff called it "probably the mother of all bond bear markets" (The Peter Schiff Show, Oct 3).
The dollar is at its highest level of the year. Chandler says the dollar index has gone "basically ballistic," up about 3.6% since just before the mid-September Fed meeting, to around 101.68 (The KE Report, Oct 2).
A contrarian call is building. Donnelly of Spectra Markets puts the dollar rally in "the seventh inning" out of nine. He is "on high alert" for a setup to bet against it (The Macro Trading Floor, Oct 2).
Europe is adding to the dollar's lift. French 10-year bonds now yield about 150 basis points more than German ones, against a usual gap of about 80. The euro fell "a little bit more than a percent" last week, one of the weakest major currencies.
Dollar funding markets are calm. JPMorgan calls the cross-currency basis a "relative sea of calmness" and expects it to stay in a range (At Any Rate, Oct 2).

What's new

The jobs report: weak, but not weak enough to change the Fed's mind

Here's what CNBC's Steve Liesman reported on Squawk on the Street Friday morning:

Payrolls: 29,000 against an estimate of 84,000. Revisions took "60,000 combined off July and August."
Unemployment: up a tenth to 4.2%, a tenth more than expected.
Wages: up "just 0.1 percent for a year-over-year rate of 3 percent," down from 3.1%. Liesman called this "the disappointment."
Fed odds: an October hike plunged "to around 20 percent from 70 earlier this week." December odds fell to 83% from 95%.

The Schwab Market Update this morning added some detail. August's first count of 162,000 jobs was cut to 133,000. July's 21,000 gain became a loss of 10,000. Not everything was bad: the separate household survey showed a gain of 406,000, and more people joined the workforce. The three-month average is now around 50,000.

That 50,000 figure matters. Because immigration has slowed, the economy needs fewer new jobs each month to keep unemployment steady. Liesman said a three-month average of 51,000 is "right around the center of estimates of the break even unemployment rate." In other words, this may be what a normal month looks like now.

Neil Dutta of Renaissance Macro made the same point on RenMac Off-Script: "In this economy, 51,000 per month over the last three months is fine." He called the report "one for the doves," then added that jobs aren't what's driving the Fed. "The onus is still on the inflation side." The number that will matter more, he said, is the inflation report "in two weeks."

The bond market shrugged off good news

This is the strangest part of the week. Bad jobs data normally pushes yields down, because it means the Fed is less likely to raise rates. That happened for about an hour.

Carl Quintanilla described it on Squawk: the 10-year "got down to 5.17 after the print. Now back to 5.24." It closed the day at 5.28%, up 10 basis points for the week, "near 24-year highs," according to Schwab. The 30-year closed at 5.63%, per Schiff.

Schwab's explanation: "Aggressive AI spending, global pressure on yields, and rising government deficits appeared to outweigh one month's soft U.S. jobs growth in the minds of bond traders."

Schiff, who expected exactly this, put it more bluntly on his podcast: "That rally got sold, despite the fact that the expectations for a Fed rate hike in October didn't rise. They stayed down. The market sold off treasury bonds anyway." (Schiff is a long-time bond bear and gold advocate, so weigh his framing accordingly.)

One more detail from Schwab is worth noticing. The 2-year yield, which tracks expected Fed moves most closely, rose just 4 basis points on the week. The 10-year rose 10. Long-term rates are now rising faster than short-term ones. That suggests the selling is about something other than the Fed.

Why the dollar keeps climbing: follow US rates, not the gap

Chandler, one of the most experienced currency strategists around, gave the clearest explanation of the dollar's run on The KE Report.

The move: The dollar index "bottomed and has gone basically ballistic. It's up almost, call it 3.6 percent... since around... a little bit before the middle of September." It "made new highs for the year this past couple of days."
The surprising mechanism: Textbooks say currencies follow the gap between two countries' interest rates. Chandler says that isn't what he sees. "For the Euro, for the yen, sterling, it looks like US interest rates are more important than their interest rates or than the interest rate differential." When US yields go up, the dollar goes up, more or less regardless of what's happening abroad.
The exception is Canada. "In the past three and a half weeks, the Canadian dollar has only strengthened twice. And each time it was less than 0.1%." Here the rate gap really is the driver: the extra yield on US 2-year bonds over Canadian ones is at "a 20 or 30 year high."
The global picture: The US 10-year is up about 110 basis points this year. That isn't unusual. France is up 130, Italy 105, the UK 90, Japan over 100, and Germany 60. What is unusual is the speed. US 10-year yields rose about 50 basis points in a single month.

Chandler's Fed call: no hike in October, but "I don't see why the Federal Reserve would not raise rates in December and probably again in Q1." He expects "at least two more Fed rate hikes," and notes the market is pricing "a little bit more than three."

On CNBC, Morgan Brennan noted the dollar index dipped Friday but was "still trading right near levels that we haven't been in, I'll call it, 17 months or so." On the CNBC futures segment read out on Bitcoin And, the immediate reaction to the jobs report was that "gold gained more than 1.1% and the greenback fell versus major currencies." Neither move lasted. The chart-watcher behind In it to Win it noted the dollar index ended "up 0.9% for the week," breaking above a trend line he expected to hold. Gold finished the week down 3.7%.

The case that the rally is getting tired

The most useful conversation on the dollar came from Alfonso Peccatiello (Macro Compass) and Brent Donnelly (Spectra Markets), both former bank traders, on The Macro Trading Floor. Practitioner view.

Peccatiello opened with: "The dollar is unstoppable. Emerging market carry trades are taking a punch in the face."

Then he pointed to something in the options market. Traders can buy contracts that pay off if the dollar rises (calls) or falls (puts). Normally, after a big rally, people want protection against a fall. Instead: "You see dollar max going up various standard deviations. And despite this, you see dollar max risk reversal in favor of dollar... calls being bid on the upside." His read is that traders who bet against the dollar got caught and are scrambling to cover. "That's literally what's happening probably... And this tends to inform me that we are getting there."

Donnelly agreed, but isn't betting yet:

"I'm more like in the on high alert looking to for either a technical setup or some kind of new setup to be short dollar max. But I think we're in like, if a baseball game has nine innings, we're in the seventh inning."

Translation: the rally probably has a bit further to go, but the people who chased it late are starting to look like the last buyers.

The Fed is priced for a lot of hikes. Is that too many?

Peccatiello laid out what the bond market is betting on. "The median outcome, according to the market, is that the Federal Reserve will raise the rate four more times in the next 12 months. And the market implied probability that the Federal Reserve will raise six times or more is 25%." Six hikes would take rates "higher than 2022, where we were really fighting runaway inflation."

His view: "I can hardly see runaway inflation... I can't see it going to 4%." So betting on even higher yields means beating an already very hawkish forecast. "I think the bar is pretty high to be short bonds."

That's why, if forced to pick, he would rather own bonds than bet against them. At a 10-year yield of 5.25%, the income from holding bonds is decent compared with how much they bounce around. But he isn't excited, because the big rally would need "fiscal tightening in the United States," an "openly dovish" Fed, or "material disinflation." He doesn't expect any of those soon.

This matters for the dollar. If the Fed hikes fewer times than priced, US yields fall, and by Chandler's logic the dollar follows.

Former Minneapolis Fed President Gary Stern was more hawkish on Squawk on the Street. Former Fed official. He still expects an October hike. Fed Chair Warsh has been "very clear about his and the institution's commitment to achieving the 2 percent inflation target," and "the increase at the last meeting isn't doing all that much work." He also recalled that "three members of the Open Market Committee of the Fed dissented because they wanted tighter policy. I doubt they were satisfied just by one quarter percentage point increase." The jobs report, to him, "didn't seem to be all that decisive or significant."

Colin Martin of the Schwab Center for Financial Research landed in between on the Schwab Market Update: "This doesn't change our expectations of two more rate hikes, but it gives the Fed more time to evaluate incoming data."

Dutta made a useful point about why the market moved before the jobs data. The odds of an October hike were near 70% until New York Fed President John Williams and Vice Chair Philip Jefferson spoke. "What they really did is kind of reveal their place on the dot plot." Both appear to expect just one more hike this year. Dallas Fed President Lorie Logan, meanwhile, "still advocates for 50 basis points of hikes this year."

What's really pushing yields up? Three podcasts, three answers

Answer 1: It's the Fed, driven by AI spending. On the Forward Guidance weekly roundup, one panelist walked through a chart deck. Inflation expectations "haven't budged all that much," sitting around 2.4% "for like six years." The term premium "hasn't really moved all that much" either. What has moved is where the market expects the Fed to set rates over time. The reason: "Nominal GDP is a hell of a drug... You got nominal GDP, 6.6%, credit growth at 3%. You want 10 year treasuries at like 4% with the Fed at three. Like it just, it doesn't make sense."

The catch is how narrow that growth is. Hyperscaler AI spending (Amazon, Alphabet, Meta, Microsoft) grew "over 90% year over year" in 2026, but is forecast to slow to "30, 35%" next year. And a chunk of it is price, not volume. "Amazon... said, essentially like memory prices are going to absorb 30% of our 2026 AI data center spend versus just 8%" in earlier years. For Microsoft, "out of like the 190 billion guide, I think like 25 billion has just been... higher pricing."

Another panelist put the human cost in numbers. The 30-year yield is "at 5.6% today. Six months ago, it was at 4.6." For someone who relies on a mortgage, that means they "can afford like a 11% less... smaller or cheaper house."

The panel was skeptical that September's hike did much. "All the Fed hike really did was show the market that... you can still kind of trust the Fed," one said, noting the earlier CNBC headlines asking "is Warsh a sock puppet for Trump?"

Answer 2: Treasuries simply got riskier. Today's Odd Lots featured a finance academic whose research tracks whether bonds and stocks move together. When they move in opposite directions, bonds are a hedge and investors accept low yields to hold them. When they move together, "there is nowhere to hide," and investors demand more.

The guest's numbers: "Roughly maybe a quarter of the decline between the mid-80s and 2010s in the 10-year yield was due to treasury bonds becoming better hedges." But from 2020 through 2025, "the increase in the 10-year yield was really the majority" explained by "bonds becoming more stock-like." Going back to 1980s-style bond risk "really requires a perfect storm": inflation shocks like oil spikes or "fiscal sort of lack of credibility," plus a Fed "willing or forced to accept the recession."

The conversation then turned to the dollar's global role. The guest's model, built with a Columbia co-author, suggests that when debt levels are very high, "financial market expectations" can become "self-fulfilling," and "there could be a hegemonic transition that doesn't even involve war. It's just financial markets deciding." The guest called that "more of... a hypothetical." One of the hosts added a striking comparison: China's 30-year bond yields 2%, against roughly 5.6% for the US when they recorded on September 29.

Answer 3: Debt, war, and a quiet plan to print. Cem Karsan gave the most provocative take on Top Traders Unplugged. Opinion, and a strongly held one. His list: debt borrowed in 2021 at around 2.5% is being refinanced at about 7.5% between 2026 and 2028; the Middle East conflict is inflationary; and "nobody wants to own U.S. debt internationally because of the debasement trade." Debasement means the fear that the government will print money and shrink the dollar's value.

On the dollar specifically, Karsan argues September's Fed hike was mostly about appearances. "What happened, right, when the U.S. did this?... Dollar strength, gold weakness, right? This is the whole game." He claims "there's zero independence" between Warsh and Treasury Secretary Bessent, and that the hike "achieved its primary goal, which is to create a... appearance of independence of Warsh to strengthen the dollar in the short term."

His forecast: the 10-year hits "somewhere between five and a half and 6%," fast, "sometime in the next three months." Stocks fall "25 to 40%," most likely after the midterms. Then the Fed steps in with a "massive facility at the long end of the curve." Treat this as one trader's thesis, not a consensus view.

Europe: France is the dollar's quiet helper

Two podcasts flagged French bonds as a growing problem. Peccatiello opened his show with it: "French bonds are trading 150 basis points over Germany which is the same, the peak of the 2012 crisis."

Chandler explained why on The KE Report. France has "a minority government, a lame duck president," and has "lost several prime ministers" trying to pass a budget. The French spread over Germany is "usually about 80 basis points." Italy and Greece have asked the EU for room to run bigger deficits. Chandler thinks this helps "account for why the euro has underperformed this past week," falling "a little bit more than a percent... one of the weakest out of the G10 currencies." Since the euro makes up most of the dollar index, a weak euro is a strong DXY.

JPMorgan's rates team on At Any Rate said "position liquidations have exacerbated the recent moves" in European spreads, and "it's very hard to put a cap on the level." Practitioner view. Outside France, they're staying cautious until global bond volatility settles.

Dollar plumbing: funding is calm, repo is still twitchy

The cross-currency basis is the extra cost foreign banks pay to borrow dollars by swapping their own currency. When it blows out, dollars are scarce. JPMorgan's Khagendra Gupta said on At Any Rate that "amidst the heightened volatility that we have seen elsewhere... cross-currency basis has exhibited a relative sea of calmness." Practitioner view.

Three things he's watching:

The usual drivers have gone quiet. Normally one global factor drives most of the moves across currencies. This year it "explains a meager like 45% of the total variance."
Fed reserves. Bank reserves are "ample at around $3 trillion now" but could fall to "around... $2.9 trillion over the next few weeks" as the Treasury rebuilds its cash account. That "may impart some local volatility."
Big Tech borrowing abroad. Hyperscalers "have ramped up their non-dollar issuance this year," which "should keep some widening pressure on the basis globally."

His conclusion: "We expect basis to remain range bound."

Jeff Snider was more worried about repo on Eurodollar University. Repo fails, when a trade doesn't settle because collateral didn't show up, rose "to above $320 billion combined" in mid-September, nearly identical to a year ago. His argument: hedge funds running the "basis trade" (buying Treasuries with borrowed money and selling futures against them) have become "a very important marginal source of buying." When repo seizes up, they can't buy, and long-term yields jump. He calls the pattern "September cubed" and says it has shown up in most years since 2021. His punchline for bond owners: "Thank God it's October."

Snider also flagged junk-bond stress. The riskiest corporate bonds (rated CCC) now yield about 1,170 basis points more than Treasuries, "above last year's spike" and "equal to 2022." Jeff deGraaf of RenMac said the gap between CCC and BB bonds is about 952 basis points, though "about four issuers" make up 25% of that market and excluding them drops it "back to about 680." Either way, he said, "all those spreads have started to go up."

The debate

Bull case for the dollar. US yields keep rising, and per Chandler, that alone pulls the dollar higher. The Fed still plans more hikes (Stern says October; Chandler and Schwab say December plus one more). Europe has its own budget troubles, which weigh on the euro. Karsan, from a very different angle, thinks Washington wants a strong dollar right now to preserve credibility. Even on a weak jobs day, the dollar held near 17-month highs.

Bear case for the dollar. The market has already priced about four Fed hikes over the next year, with a one-in-four chance of six. Peccatiello thinks that's too hawkish. If inflation cools, those hikes disappear, and US yields with them. The options market shows late buyers chasing the rally, which is often a sign it's close to the end. Donnelly is waiting for the moment to bet against it. Snider argues the real economy is weaker than it looks, "9.7 million jobs off of trend" against the 2010s pace (Eurodollar University, Oct 4), which would eventually drag yields and the dollar down.

The split on why yields are rising matters for the dollar. If Forward Guidance is right that it's mostly about the Fed, a softer Fed brings both yields and the dollar down together. If Karsan and the Odd Lots guest are right that investors are demanding more to hold Treasuries in their own right, you can get the ugly combination: rising US yields and a weaker dollar, the pattern people associate with emerging markets.

The trades in play

Bet on the dollar falling, but not yet. Donnelly is "on high alert" for a setup to short the dollar index, but is waiting (The Macro Trading Floor).
Own long-term Treasuries, small, with a clear exit. Peccatiello says that if you buy the 10-year, "technically, you can put a stop at 550," the weekly peak from 2000-2001. He warns the stop is tight: "with the recent vol, it doesn't take a lot to move 25 basis points." He also suggested selling options that pay off if bonds don't fall further, as a way to earn "a small amount of money" with "relatively high likelihood."
Expect a flatter curve. DeGraaf says the 2-year's spike, a "2.8 deviation" move, tends to keep going, while the 10-year's tends to reverse. "That means that the curve is going to flatten," usually "within about a three month period" (RenMac).

Read-throughs

Canada. The Canadian dollar has barely strengthened in three and a half weeks, and the US-Canada rate gap is at a multi-decade high (Chandler). Canadian exporters benefit; Canadian importers and travelers pay.
Emerging markets. "Emerging market carry trades are taking a punch in the face" (Peccatiello). A strong dollar and high US yields pull money out of higher-yielding currencies.
Gold. Down 3.7% last week as the dollar rose. Karsan frames the two as directly linked: "dollar strength, gold weakness."
Housing and small companies. Forward Guidance says home builders, regional banks and small caps are "getting decimated." Schwab notes the equal-weighted S&P 500 is down "seven straight weeks, the worst stretch since mid-2022," and only about 42% of S&P stocks are above their 200-day average.
UK. JPMorgan estimates higher gilt yields have shrunk the UK's budget cushion from about £23-24 billion to "close to 10 billion" ahead of the November budget.

What changed

The October hike is mostly off the table. It went from about 70% to about 20% in a week, thanks first to Williams and Jefferson, then to the jobs data. December is now the expected meeting.
Yields and Fed odds stopped moving together. Last week's story was the market out-hawking the Fed. This week, hike odds fell and long-term yields still rose. That points the finger at deficits, AI borrowing and Treasury risk rather than the Fed.
Dollar sentiment has turned from "unstoppable" to "late." Practitioners are now openly talking about when to bet against it, not whether.

The week ahead

Today: ISM services index. Schwab flags its prices-paid measure, which rose for 21 straight months through August to a four-year high.
Wednesday: 10-year Treasury auction, a test of demand for US debt. Schwab warns, "A few well-received auctions several weeks ago did nothing to halt the yield rally."
October 13: Big banks begin reporting earnings.
October 14: September CPI, which Dutta calls the more important number for the Fed.
October 28: FOMC meeting.
November 3 and 4: Midterm elections, then the Treasury's quarterly borrowing announcement.