USD consolidates as risk assets extend Friday bounce – BBH

The US Dollar (USD) consolidates after last week’s gains as New York Fed President John Williams’ dovish remarks raise bets on a December rate cut, supporting equities and stabilizing bonds, BBH FX analysts report, BBH FX analysts report.

Williams’ dovish comments boost December Fed cut odds

"USD is consolidating last week’s gains, equity markets extend Friday’s bounce, and bond markets are stable. A dovish speech by influential New York Fed President John Williams on Friday revived easing bets. Fed funds futures raised odds of a December 10 rate cut from roughly 35% to as high as 70% following Williams’ comments. That has curtailed USD upside momentum and is supporting risk assets." 

"Williams noted 'I still see room for a further adjustment in the near term to the target range for the federal funds rate to move the stance of policy closer to the range of neutral'. According to Williams 'the downside risks to employment have increased as the labor market has cooled, while the upside risks to inflation have lessened somewhat'. Fed Chair Jay Powell and Williams are generally aligned on policy, with Williams serving as a key voice for the Fed’s institutional stance."

"Our base case remains for the FOMC to deliver a follow-up 25bps cut to 3.50%-3.75% at the conclusion of its December 9-10 meeting. However, convincing the 'many' FOMC participants that favor keeping rates unchanged the rest of the year to lean towards a cut will be challenging amid the void in key US statistics. As such, it’s hard to lean against the dollar’s upswing ahead of the Fed’s December rate decision."