Investing.com – The price of soared and equity markets suffered weakness in response to the Iranian missile attacks on Israel, but the US dollar gains were more muted, noted UBS, suggesting a market that is not especially over-positioned in short dollar trades.

At 05:20 ET (09:20 GMT), the Dollar Index, which tracks the greenback against a basket of six other currencies, traded 0.1% higher to 101.020, after gaining about 0.5% in the previous session. 

Tuesday’s soft September data seemingly took precedence over the upside surprise in August data, with 2yr US Treasury yields falling after their release. 

“This was in line with our longstanding view that the market will asymmetrically weight weak US data more strongly than resilient numbers by ascribing more forward looking powers to the former,” analysts at UBS said, in a note dated Oct. 2. “The weakness in the prices paid and employment components in particular are very supportive of Fed rate cuts.”

The soft data were timely for USD bears, given that Monday’s comments by Fed chair Jerome Powell suggesting that rate cuts would go back to 25bp increments from November had allowed a modest USD pullback after sharp losses seen since mid-August, UBS said.

“With Fed officials like Bostic making it clear that further 50bp rate cuts are possible if the jobs market shows signs of real weakness, even before the ISM data it was unlikely that Powell’s comments this week could have a durable impact,” UBS added.

As such, the focus now shifts very clearly onto the September employment data due on Friday. 

UBS economists are looking for headline to bounce back to 180k, above market expectations of 150k, but with the staying at 4.2% – outcomes that argue for a 25bp rate cut at the 7 Nov FOMC rather than another 50bp cut. 

“From our perspective, with spot close enough already to many of our year-end calls, it gets harder to chase general USD weakness at these levels without a firm view that Friday’s jobs numbers will be weak (eg payrolls under 100k without upward revisions to previous months or an unemployment rate of 4.4% or higher),” UBS added.

By Harry Robertson and Tom Westbrook

LONDON/SYDNEY (Reuters) -The dollar held on to its biggest gains in a week on Wednesday after an Iranian missile attack on Israel drove the buying of safe haven assets as investors fretted about the widening of conflict in the Middle East.

It also jumped against the yen as Japanese officials, including new Prime Minister Shigeru Ishiba, talked down the chances of another Bank of Japan rate hike.

The euro was little changed against the dollar at $1.1069, following its largest drop in nearly four months on Tuesday at 0.6%.

The , which tracks the currency against a basket of peers, was also steady at 101.32 after rising 0.5% on Tuesday.

Iran said on Wednesday its missile attack on Israel, its biggest military assault on the Jewish state, was over, barring further provocation, while Israel and the United States said they would retaliate against Tehran.

Israel said Iran fired more than 180 ballistic missiles and Iran’s Revolutionary Guard Corps said the attack was retaliation for Israeli killings of militant leaders and aggression in Lebanon against the Iran-backed armed movement Hezbollah.

The markets’ response to the Middle East tensions thus far has centred on oil prices.

“The oil price does appear to be where the market is taking its steer from (but) even now () is still at $75 a barrel, and that’s far lower than what it was before the summer,” Jane Foley, head of FX strategy at Rabobank, said.

“It is still obviously a primary source of concern. And the market will certainly be keeping one eye on that and one eye on the Fed and the U.S. economy as well.”

In Japan, the dollar was last up 0.77% against the yen at 144.71 yen per dollar.

Bank of Japan Governor Kazuo Ueda avoided repeating the central bank’s pledge to keep raising rates in a speech and focused on the risks facing the economy.

After a meeting with Ueda, new PM Ishiba said Japan is not in an environment for an additional interest rate hike, causing the yen to fall further.

Elsewhere, the safe haven Swiss franc fell around 0.2% to 0.8435 per dollar, after it reversed its morning losses to rise slightly on Tuesday.

Sterling was little changed at $1.3281 after dropping 0.67% the previous day.

The euro’s fall on Tuesday was also driven by increased bets that the European Central Bank will cut interest rates in October, after data showed euro zone inflation fell more than expected to 1.8% in September.

The dollar’s rise was helped by a stronger-than-expected reading on U.S. job openings.

The focus turns to U.S. private payrolls data due later on Wednesday, with traders also monitoring a dispute at U.S. ports. The most important data point of the week is the U.S. employment report for September on Friday.

East and Gulf Coast dockworkers began their first large-scale strike in nearly 50 years on Tuesday, halting the flow of about half the country’s ocean shipping.

Vice Presidential candidates J.D. Vance and Tim Walz squared off in a nationally televised debate on Tuesday, which was largely civil and was met with muted market response.