US Dollar: Fed support and risk backdrop – BBH

Brown Brothers Harriman’s (BBH) Elias Haddad notes that the US Dollar (USD) remains firm as United States (US) jobs data, higher Federal Reserve (Fed) rate expectations and rising Oil prices pressure stocks and bonds. Haddad argues USD can keep edging higher against major currencies as improving US labor demand and sticky inflation support a more restrictive Fed stance, with futures pricing further tightening into year-end.

USD holds firm on Fed repricing

"USD is holding on to Friday’s solid US jobs gains. Risk off sentiment is weighing on EMFX relative to G10 FX. But KRW stands out as the clear outperformer as South Korean authorities stepped up efforts to stabilize the currency. USD/JPY briefly slipped back below 160.00 after reaching 160.39, narrowly missing the April 30 high of 160.72 that prompted intervention."

"USD can continue to edge higher against most major currencies as the US macro backdrop of improving labor demand and sticky inflation back a more restrictive Fed policy stance. Fed funds futures fully price in a 25bps rate hike to a target range of 3.75-4.00% by year-end and nearly 50bps of tightening in the next twelve months."

"Stock and bond markets are under pressure from a triple headwind: a pullback of the AI trade, rising Fed rate hike expectations, and a jump in crude oil prices triggered by escalating tensions between Iran and Israel."

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