US Dollar: Limited downside after CPI – BBH

Brown Brothers Harriman’s Elias Haddad notes the Dollar has steadied after its post-CPI slide, with US economic outperformance, a higher-for-longer Federal Reserve stance and strong foreign demand for US securities limiting further downside. Upcoming Fed Beige Book and several Fed speeches are highlighted as key inputs for Dollar and rate expectations.

Dollar supported by Fed and flows

"We see limited follow-through to the dollar’s post-CPI decline for three reasons. First, a stabilizing US labor market combined with a less worrisome inflation backdrop reinforces the US economic outperformance narrative and should underpin USD."

"Second, Fed Chair Kevin Warsh’s unwavering commitment to the Fed’s 2% inflation target is also consistent with a higher for longer policy stance and supports USD. Warsh vowed yesterday to “double down” on the Fed’s 2% inflation target, adding that the softer June CPI data doesn’t make him think it’s “mission accomplished” or “everything is swell.”"

"Third, underlying demand for USD remains strong. The US Treasury International Capital (TIC) data showed net foreign purchases of long-term US securities (treasury bonds & notes, corporate bonds, equities, gov’t agency bonds) increased by $263bn in May (the most since November 2025) vs. $207bn in April."

"The Fed Beige Book (7:00pm London, 2:00pm New York) will offer fresh anecdotal insights on US economic activity."

"Equity markets are firmer powered by technology stocks and led by the semiconductor-heavy Kospi index. The sell off in bonds stabilized while USD steadied after sliding yesterday on softer than expected US June inflation."

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