US Dollar: Hawkish Fed pricing supports USD – BBH

Brown Brothers Harriman’s (BBH) Elias Haddad notes the US labor market is stabilizing and inflation is gaining traction, with ISM surveys and the Fed Beige Book reinforcing this view. Haddad highlights that a 25 bps Fed funds rate hike to 3.75-4.00% by year-end is now heavily priced and supportive for the Dollar, while upcoming Revelio Labs employment data will be watched for confirmation.

Fed pricing underpins stronger Dollar

"The Fed Beige Book reinforced the case that the US labor market is stabilizing and inflation is gaining traction. According to the Beige Book “Employment showed little to no change across eleven Districts, while one District experienced modest growth…Prices increased at a moderate to strong pace overall, with most Districts reporting higher inflation than the previous report.”"

"The ISM May surveys corroborated the Beige Book’s findings. The Prices Paid indices signaled inflation risks remain skewed to the upside while the Employment gauge was stable under the 50.0 boom/bust threshold."

"A Fed funds 25bps rate hike by year-end to a target range of 3.75-4.00% is increasingly likely (75% priced-in) and supportive of a firmer USD."

"Dallas Fed president Lorie Logan (FOMC voter) said yesterday, “I'm increasingly concerned that higher interest rates could be necessary later this year to fully restore price stability.” Logan was one of the three regional Fed presidents (the other two are Beth Hammack and Neel Kashkari) that did not support the inclusion of an easing bias in the April 29 post-meeting statement."

"Fed speakers today include: Richmond Fed President Tom Barkin (2027 voter), Fed Vice Chair for Supervision Michelle Bowman, San Francisco Fed President Mary Daly (2027 voter), and Kansas City Fed President Jeff Schmid (non-voter)."

(This article was created with the help of an Artificial Intelligence tool and reviewed by an editor.)