Dovish Fed talk weighs on USD as markets rally – BBH

US Dollar (USD) is trading heavy while equity markets continue to edge higher as Fed officials are sounding more dovish and global economic activity is resilient. Rate differentials point to further USD weakness, BBH FX analysts report.

Rate cut bets rise after Fed flags economic slowdown

"Fed Governor Lisa Cook called the July jobs report 'concerning' and said the sizable downward revisions to jobs gains in May and June, 'are somewhat typical of turning points' in the economy. San Francisco Fed President Mary Daly (FOMC non-voter): 'The labor market has softened. And I would see additional slowing as unwelcome…All this means that we will likely need to adjust policy in the coming months.' Minneapolis Fed President Neel Kashkari (2026 voter): 'The economy is slowing…In the near term it may become appropriate to start adjusting the federal funds rate'."

"Today, Atlanta Fed President Raphael Bostic (non-FOMC voter) speaks on monetary policy (10:00am New York, 3:00pm London). Fed funds futures virtually fully price-in a 25bps cut to 4.00-4.25% at the next September 17 meeting. By year-end, Fed funds futures imply 50bps of easing and 40% odds of an additional 25bps cut."

"US Q2 non-farm productivity data is up next (8:30am New York, 1:30pm London). Productivity (GDP/hours worked) is expected at 2.0% SAAR vs. -1.5% in Q1, which would be in line with the post-war average of 2.1%. An AI-driven productivity boom remains a key upside risk to our downbeat US growth outlook. Stronger output without price pressure could shift the narrative fast and support a firmer USD. The New York Fed July inflation expectations survey will also be in focus (11:00am New York, 4:00pm London). Encouragingly, inflation expectations are contained and leaves room for the Fed to ease policy."