TD Research argues that markets are wrestling with an unending stream of data-driven narratives, leading to a degree of choppiness in FX markets. The recent US economic indicators, according to TD, reinforce the notion that the Federal Reserve's cycle of rate hikes is nearing its end. Despite a positive jobs report, the latest inflation data supports the possibility of the Fed slowing its pace of interest rate hikes.

However, TD also points out that the rising risks tied to banks and the ongoing US debt ceiling stand-off could trigger a market downturn. Interestingly, the USD's sensitivity to banking stress has increased more than its responsiveness to broader market risks, suggesting its safe-haven status is under scrutiny.

TD suggests that further banking stress or protracted deadlock over the debt ceiling could drive rates lower, negatively impacting the USD's carry appeal. Lastly, TD observes a notable shift in the market narrative over the past week due to the weakening momentum in both Chinese and Eurozone data.