US dollar touches May 2025 high before payrolls; Asian FX slides on yield pressure

The upcoming payrolls report acts as the pivot for both the greenback and Asian currencies. A reading below the roughly 90,000 consensus would likely knock US Treasury yields and the dollar index lower, freeing tech-oriented currencies to reflect robust regional fundamentals, while a strong figure would revive pricing for an October Federal Reserve rate hike, a view already supported by hawks such as Logan. Crude oil remains a structural drag: Brent above $100 on the Iran conflict and diesel shortages worsens terms of trade for energy-importing Asian economies like South Korea, Taiwan and Japan, partly offsetting the benefit from booming tech exports. The ISM prices-paid jump suggests energy and input costs are still feeding through, keeping upside inflation risk alive.

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Asia's data is booming, but its currencies take orders from US yields, and the payrolls report will decide whether that changes.

Summary:

• According to MUFG, the dollar index briefly hit its highest since May 2025, around 102, ahead of US payrolls.
• US jobless claims fell to 197,000; the ISM manufacturing index eased to 54.5 while prices paid jumped to near 78.
• Payrolls are expected to show about 90,000 jobs and an unchanged 4.1% unemployment rate.
• South Korea's September exports rose about 84% y/y, beating expectations of about 63%.
• Manufacturing PMIs stayed in expansion in Korea (53.9), Japan (54.1) and Vietnam (51.9).
• MUFG sees a soft payrolls print helping tech-linked currencies such as KRW, TWD, MYR and SGD.

The US dollar remained firmly bid ahead of Friday's payrolls report, with the dollar index briefly climbing to its highest since May 2025, MUFG reported, as investors continued to back the US growth and yield story.

The bank said that while this week's softer inflation data had trimmed expectations for an October Fed hike, inflation remains above the 2% target and activity data continue to point to a resilient economy. Initial jobless claims fell to 197,000, construction spending rose 0.9% in August, and the ISM manufacturing index slipped only marginally to 54.5 in September from 54.6, comfortably in expansion territory. MUFG highlighted the jump in the ISM prices-paid component to near 78 from about 71 as a sign that upstream inflation pressures remain firm.

With long-dated Treasury yields still close to recent highs and the dollar index reaching around 102, attention has turned to the payrolls data, which are expected to show employment growth of about 90,000 and an unchanged unemployment rate of 4.1%.

Most Asian currencies weakened against the dollar despite largely positive regional data. South Korea's exports surged about 84% from a year earlier in September, well above expectations of about 63% and up from around 69% in August. Manufacturing PMIs stayed in expansion in South Korea at 53.9, Japan at 54.1 and Vietnam at 51.9, and Japan's Tankan survey pointed to a supportive corporate backdrop with steady investment plans. MUFG said the figures suggest regional manufacturing continues to benefit from improving external demand and technology-related investment.

The payrolls report is likely to determine whether that strength starts to show up in currencies. In MUFG's view, a weaker than expected print could pull US yields lower and allow stronger fundamentals to support tech-linked currencies such as the South Korean won, Taiwan dollar, Malaysian ringgit and Singapore dollar. Continued labour market resilience, by contrast, would reinforce expectations of tighter US policy, keeping yields and the dollar supported and limiting any gains for Asian currencies.

The bank added that the combination of elevated oil prices, a stronger dollar and higher US yields continues to tighten financial conditions across the region, leaving external drivers as the dominant influence on Asian currencies in the near term.