US Dollar: Upside risks persist on resilient data – BBH

Brown Brothers Harriman’s Elias Haddad notes that the positive shift in US-Iran relations initially weighed on the US Dollar (USD), but he still expects the USD to edge higher near term. Haddad highlights resilient US economic activity and warns that the May PPI surge is a red flag for the US economy, posing risks of margin compression or higher consumer prices.

Dollar supported by resilient US data

"USD dropped against most currencies on news of the positive US-Iran breakthrough and has since recouped part of its loss. We are sticking to our view that USD can edge higher in the near-term. Resilient US economic activity in both absolute and relative terms outweigh the drag to USD from easing geopolitical fears."

"June University of Michigan sentiment survey is due later today (3:00pm London, 10:00am New York). Long-term inflation expectations are critical to watch for confirmation that long-term inflation expectations remain anchored."

"The May PPI is a red flag for the US economy. Headline PPI increased to 6.5% (vs. 5.7% prior), the highest since November 2022. In comparison, headline CPI rose to 4.2% y/y (vs. 3.8% prior), the highest since April 2023."

"The widening gap between PPI and CPI points to either margin compression if firms continue to absorb rising input costs or greater pass-through into consumer prices, neither of which is particularly encouraging for the economic outlook."

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