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.