US Dollar: Fed hold and data support – BBH

Brown Brothers Harriman’s (BBH) Elias Haddad expects a hawkish Federal Reserve (Fed) hold and a goldilocks-like United States (US) macro backdrop to keep the US Dollar (USD) supported in coming days. Haddad highlights firm US growth, softer inflation and closely watched FOMC vote dynamics, alongside key releases including Q2 GDP, June PCE and the Employment Cost Index, as central to near-term USD performance.

Fed stance and data underpin Dollar

"We expect the FOMC to keep the target range for the funds rate at 3.50%-3.75% for a fifth straight meeting. Fed funds futures price in 38% odds of a 25bps rate increase this week and a total of nearly 50bps of tightening by year-end. Aside from the policy decision, attention will focus on the FOMC vote split and comments around the durability of the inflation threat"

"The FOMC voted unanimously to keep rates on hold in June. This time, our base case is a 10-2 vote split, with Cleveland Fed President Beth Hammack and Dallas Fed President Lorie Logan dissenting in favor of a 25bps hike. The risk is a more hawkish 9-3 outcome if Fed Governor Lisa Cook also join the dissent. All three Fed officials have argued recently that the risks continue to be strongly weighted toward higher inflation with Logan even calling for “modestly higher interest rates.” "

"Real GDP is expected at 2.1% SAAR vs. 2.1% in Q1 underpinned by consumer spending and AI-related business investment. That would keep growth modestly above trend of 2%. Model based estimates for Q2 growth vary widely, with the Atlanta Fed GDPNow at 1.7%, the New York Fed GDP Nowcast at 2.8%, and the S&P Global PMI pointing to growth closer to 1.2%."

"Headline PCE is seen declining -0.1% m/m vs. +0.4% in May due to lower gasoline price, while the annual rate is expected to ease to 3.7% vs. 4.1% in May. Core PCE is expected to rise +0.2% m/m vs. +0.3% in May, and the annual rate is forecast to ease to 3.3% vs. 3.4% in May. The FOMC 2026 median projection for headline and core PCE inflation are 3.6% and 3.3%, respectively."

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