US Dollar: Mixed data keeps policy path in focus – BBH

Brown Brothers Harriman’s (BBH) Elias Haddad notes that the US Dollar weakened alongside short-term Treasury yields as Fed Chair Kevin Warsh’s patient stance on inflation and concerns over slowing AI investment weighed on rate hike expectations. Attention now turns to upcoming US labor market data, including NFP, JOLTS and ADP, with steady hiring and easing wage growth potentially reinforcing the Fed’s gradual tightening approach and keeping the Dollar in check.

Data and politics steer Dollar outlook

"USD and short-term Treasury yields drifted lower last week as Fed Chair Kevin Warsh struck a patient tone despite stalled progress on US inflation. Concerns about an AI investment slowdown compounded the move, casting doubt on the US growth outlook and dampening Fed rate hike expectations."

"This week’s data is mixed for USD. Steady US hiring and slower wage growth would back Warsh’s gradual approach to rate hikes and keep USD in check."

"October nonfarm payrolls (NFP) (Friday). Consensus looks for a +65k rise in payrolls vs. +29k in September, consistent with stabilizing labor demand. The unemployment rate is expected to hold at 4.2%, a tick higher than the FOMC 2026 projection of 4.1%. Average hourly earnings are forecast to rise 0.3% m/m vs. 0.1% in September, and ease at an annual pace of 2.9% y/y vs. 3.0% in September."

"Slower wage growth underscores Warsh’s confidence that inflation compensation is going the right way. However, combined with sticky inflation, slower wage growth is also squeezing real household incomes, posing a downside risk to consumer spending."

"Ahead of the NFP, the September JOLTS report (Tuesday) should reinforce the labor market’s low hire, low fire backdrop. October ADP private payrolls (Wednesday) are forecast at +67k vs. +90k in September. October Revelio Labs employment (Thursday) has no consensus but rose 56.9k in September. Revelio may offer a better NFP signal, with a reported correlation coefficient of 0.74 vs. ADP’s 0.26 since 2010 and virtually zero year-to-date."

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