US Dollar: Fed repricing risk weighs on usd – BBH

Brown Brothers Harriman’s (BBH Elias Haddad notes the US Dollar (USD) is consolidating gains, with the US Dollar Index (DXY) testing its 200‑day moving average resistance and United States (US) data showing Personal Consumption Expenditures (PCE) Price Index inflation stuck above the Fed’s 2% target while real spending stalls. Fed funds futures still price limited tightening, but Haddad argues this gives the Fed room to hold and leaves the Dollar vulnerable to a dovish repricing.

Fed stance leaves Dollar exposed

"USD is consolidating yesterday’s gains with the DXY index testing resistance at its 200-day moving average (99.17). Brent crude oil prices are in a holding pattern under $90 a barrel. Nvidia Corp beat Wall Street revenue and sales expectations reinforcing the strength of the AI capex boom."

"Headline PCE rose 0.2% m/m (consensus: 0.1%) vs. -0.1% in June, to be 3.7% y/y (consensus: 3.6%) for a second straight month. Core PCE matched expectations at 0.2% m/m vs. 0.1% in June and held at 3.3% y/y for a second straight month. The less noisy Dallas Fed trimmed mean PCE and the Cleveland Fed median were unchanged at 2.3% y/y and 2.7% y/y, respectively."

"Yesterday, the US July PCE print showed inflation stuck above the Fed’s 2% target but not accelerating, while real personal spending stalled. That gives the Fed room to hold and leaves USD vulnerable to a dovish repricing. Fed funds futures price in 36% odds of a 25bps hike to 3.75-4.00% at the next September 16 meeting and a total of 40bps of tightening over the next twelve months."

"The Jackson Hole Economic Symposium starts today, with Fed Chair Kevin Warsh speaking tomorrow. Clear policy signal will likely be scarce given Warsh’s reluctance to provide forward guidance and the absence of a Q&A session. Instead, Warsh may preview the Fed five task forces’ early findings on communications, the balance sheet, economic data, productivity and jobs, and the inflation frameworks."

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