US FX WRAP: Dollar hit by dovish Fed Waller

USD was broadly weaker against peers, weighed by Fed Governor Waller's speech dampening Sept hike bets. Also, additional Yen strength following intervention speculation on Wednesday added further pressure to the DXY. Back to the Fed, Waller's showed an inclination towards holding over hiking in September, "to support holding rates steady" if Aug inflation data shows continued progress vs. if inflation comes in hot, "would consider a hike". Waller's inflation outlook is benign when compared to the hawkish dissenters. He only sees "some" upside risk to inflation, with wage growth consistent for him with an inflation return to 2%. He's also willing to allow for another pause to allow for disinflation, citing little cost to waiting one meeting. DXY has largely erased last weeks gains, as money markets return to pricing 50/50 of a hold/hike in September.

US data saw the ISM Services PMI beat expectations, while the prices component accelerated further with employment little changed. Initial and continuing claims confirmed a low-layoff environment, further highlighted by the Challenger Layoffs in August printing 52,881, -39% Y/Y. Ahead of NFP on Friday (exp. +56k), Revelio Labs Nonfarm Payrolls came in at +36.5k.

Alternative USD havens, JPY and CHF were the best performers on Thursday. The former, boosted by optimism over MOF support for the currency, saw USD/JPY hit lows of 155.30 against a Wednesday high of 160.39. Meanwhile, the CHF was supported by a hotter-than-expected August CPI reading, +0.8% Y/Y (exp. 0.5%, prev. 0.4%), +0.4% M/M (exp. 0.0%, prev. -0.1%). USD/CHF hit lows of 0.8052 before trimming to 0.8076. CHF/JPY dropped to 192.12, a level last seen in November 2025.