US Dollar: Strong US data may reinforce Fed hawkishness - BBH
Brown Brothers Harriman’s Elias Haddad notes the Dollar has partly recovered after the FOMC kept the Fed funds range at 3.75–4.00% in a 10–2 vote, with dissenters favoring a hike. Warsh’s press conference signaled little urgency to tighten, yet December odds remain high. Upcoming US PCE and GDP data will gauge the Fed’s scope to stay patient and sustain USD-supportive rate differentials.
Fed hold and data watch for USD
"Yesterday, the FOMC paused tightening and kept the Fed funds target range steady at 3.75-4.00%, as was expected. It was a 10-2 vote split, with Fed Governor Lisa D. Cook and Cleveland Fed President Beth M. Hammack dissenting in favor of a 25bps hike."
"2-year Treasury yields and USD fell as Warsh signaled little urgency to hike despite stalled progress on inflation. Warsh said “I feel good” about inflation expectations and inflation compensation going the right way, stressing that “quashing inflation is not about some fixed individual date on a calendar.”"
"Still, Warsh’s patience does not weaken the case for further tightening. He reiterated that inflation remains too high and that the Fed must “ensure that relative price changes in some sectors do not broaden out across the economy.” Warsh also noted that “while overall financial conditions are tighter, I’m unwilling and unable to call them tight.” Together, these comments keep a December Fed funds rate hike firmly in play, with 83% odds priced in."
"Overall, strong US economic activity and rising price pressures reinforce the Fed’s hawkish bias, keeping rate differentials supportive of USD. Today’s September PCE and Q3 real GDP releases will offer a fresh check on the Fed’s room for patience (both at 12:30pm London, 8:30am New York)."
"Real GDP growth is anticipated to rise 3.2% annualized vs. 2.2% in Q2 driven by consumer spending and AI-related business investment. The Atlanta Fed’s GDPNow and New York Fed GDP Nowcast estimates point to Q3 growth of 3.3% and 2.7%, respectively."
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