USD rebounds as yields stabilize, futures edge higher – BBH

US Dollar (USD) bounced from fresh cyclical lows, Treasury yields found footing after yesterday’s swings, and US equity futures are up. Near-term, USD can retrace more of this week’s losses before settling into its August range as yield spreads show little scope to move further against USD. Beyond the near-term, the USD downtrend is intact, BBH FX analysts report.

FOMC projections point to two more cuts in 2025

"Fed delivered a neutral cut. As was widely expected, the FOMC cut the target range for the Fed funds rate 25bps to 4.00-4.25% after keeping them on hold since January. The biggest dovish take from the FOMC is that 'The Committee…judges that downside risks to employment have risen'. That suggests more easing is in the pipeline if the US labor market shows ongoing weakness."

"Indeed, the updated FOMC 2025 median fed funds rate projection implies two more 25bps rate reduction by year-end to a target range of 3.50-3.75% (3.625%) which is largely in line with futures pricing. Unsurprisingly, there was one dissent in favor of a 50bps cut (Fed Governor Stephen Miran) and no dissent for keeping rates unchanged."

"Everything else points to a shallow, gradual easing cycle. First, the FOMC median funds rate projection still implies 1 cut in both 2026 and 2027 and the longer run rate is unchanged at 3.0%. Second, real GDP growth was revised higher across the forecast horizon, the unemployment rate was adjusted a tick lower for 2026 and 2027, while inflation was tweaked two ticks up in 2026. Third, Fed Chair Jay Powell sounded cautious on the scope for further easing describing the latest cut as a risk-management cut."