The dollar rose yesterday after initial jobless claims for the week ending September 26 fell to 197,000, down 1,000 from the revised prior week. On the same day, the September ISM manufacturing report landed: the manufacturing PMI printed 54.5 versus 54.6 in August. This double confirmation of resilience ahead of Friday's payrolls report complicates the Fed's path to an early pause.

The four-week moving average of payroll gains eased to 200,000 (?2,500 after revision), and continuing claims fell to 1,701,000 (?11,000). On an unadjusted basis, claims dropped 4.8% versus the seasonal-factor expectation of 4.1%. Note the year-over-year comparison: 156,738 claims now versus 179,162 a year earlier. That confirms the labor market goes into Friday's report from a position of strength.

Inside the manufacturing release, new orders accelerated materially to 55.3 from 53.7, while production cooled to 56.7 from 58.3. The backlog of orders jumped to 56.4 from 51.8, and received orders point to capacity utilization in the months ahead. Manufacturing employment gains dovetail with ADP's 90,000 private payroll print. One weak spot: export orders slipped to 50.9 from 53.2.

The key signal is in prices. The ISM prices-paid index surged to 77.9 from 71.1, marking a 6.8-point jump. In negative company comments, respondents cited price volatility (46%), tariffs (34%), the war with Iran (30%), and longer lead times (21%). Rising input costs are flowing into selling prices and adding to inflationary pressure.

How does that spike square with the recent soft core-PCE (0.2% m/m vs. 0.3% expected)? The answer is timing: PCE is backward-looking and subject to methodological revisions, while ISM indices capture the cost of inputs here and now — and historically, ISM turns precede consumer price readings.

Remember the policy context. The Fed raised interest rates earlier this month for the first time since 2023. New York Fed President John Williams has floated the possibility of another adjustment before year-end. After a softer PCE, traders price in roughly a 36% chance of an October move and still anticipate one rate hike for the year. The ISM prices print strengthens the hawkish case because inflation appears to be returning via costs rather than demand. Savers and the dollar benefit, while borrowers and rate-sensitive sectors such as construction lose.

Also note the European backdrop. The Middle East conflict is pushing energy prices, which feed into US factory input costs and then into selling prices — a loop that feeds directly into Fed decisions on rates. US energy independence softens the blow relative to the eurozone, but tariffs and stretched supply chains push in the same direction, so geopolitics remains a systemic factor on both sides of the Atlantic.

My view: Friday's nonfarm payrolls will likely show about 90,000 new jobs and confirm hiring strength, which would push the odds of an October hike back above 40%. The base case for the end of the year remains one more rate increase, continued pressure on borrowers, and the dollar staying the default currency.

EUR/USD technical outlook

Buyers should consider how to capture 1.1265. Only that would open a test of 1.1300. From there, a move to 1.1315 is possible, but achieving it without support from major players will be difficult. On the downside, expect significant buyer interest only around 1.1220. If bids are absent there, it would be prudent to wait for a dip to a new low at 1.1175 or to open long positions from 1.1140.

GBP/USD technical outlook

Pound buyers need to overcome the immediate resistance level of 1.3225 to target 1.3265. Breaking above that level will be challenging, with 1.3300 as the next extended target. On the downside, bears will try to seize control at 1.3180. A break below that level would deal a serious blow to bulls and could push GBP/USD to 1.3145, with scope to test 1.3110.