US Dollar Index: Upside risks as US growth outperforms – BBH

Brown Brothers Harriman’s (BBH) Elias Haddad notes that the Dollar index (DXY) risks overshooting the top of its 96.00-100.00 range in the near term as resilient United States (US) growth outpaces peers. Haddad highlights strong US GDPNow estimates and PMI data, and argues that robust US activity outweighs any Dollar drag from improving Iran-related sentiment.

Dollar index seen testing range highs

"We are sticking to our view the dollar index (DXY) risks overshooting the upper end of its nearly one year 96.00-100.00 range in the near term. Resilient US economic activity in both absolute and relative terms outweighs the drag to USD from improving sentiment tied to the Iran war."

"The Atlanta Fed GDPNow model estimates annualized US real GDP growth of 4.3% in Q2 vs. 2.0% in Q1 while the May PMI data points to a widening US growth edge over peers."

"US April PCE (Thursday) is this week’s data highlight. Headline PCE is seen rising 0.5% m/m or 3.8% y/y vs. 0.7% m/m or 3.5% y/y in March. Core PCE is expected at 0.3% m/m or 3.3% y/y vs. 0.3% m/m or 3.3% y/y in March. Both headline and core PCE inflation are overshooting the FOMC’s 2026 projection of 2.7%, underscoring pricing for a more restrictive Fed stance."

"Fed Chair Kevin Warsh said during his Senate confirmation hearing he preferred to follow “trimmed averages” inflation as opposed to core PCE price index. The Dallas Fed trimmed mean PCE and the Cleveland Fed 16% trimmed mean CPI are currently below core PCE, implying room for the Fed to loosen policy."

"Regardless, the center of gravity on the FOMC has shifted from an easing to a more neutral bias raising the risk that Warsh becomes the first modern Fed chair to be outvoted on policy."

"Even dovish-leaning Fed Governor Christopher Waller pumped the brakes on cuts last week highlighting “my current policy position is to hold rates steady for the near term…But I can no longer rule out rate hikes further down the road if inflation does not abate soon.”."

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