US Dollar: Fed data focus supports modest gains – BBH

Brown Brothers Harriman’s (BBH) Elias Haddad notes the US Dollar (USD) traded mixed, but expects USD to edge slightly higher over the next couple of months as US labor markets stabilize and inflation remains sticky. Upcoming United States (US) Consumer Price Index (CPI), Producer Price Index (PPI), retail sales, the University of Michigan survey and Fed Chair Kevin Warsh’s testimony are seen shaping Fed funds pricing and near-term Dollar direction.

Fed data and Warsh testimony eyed

"In our view, USD can edge a little higher against most currencies in the next couple of months. Stabilizing US labor market conditions and sticky inflation will keep Fed funds rate pricing hawkish. Fed funds futures more than 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."

"This week’s US June CPI and retail sales data will help shape near-term Fed funds rate expectations. Fed Chair Kevin Warsh’s testimony before Congress will add another layer of volatility as markets scrutinize his assessment of the inflation outlook and policy path."

"June CPI is due Tuesday. Headline CPI is expected to fall -0.1% m/m vs. 0.5% in May on lower gasoline prices, to be up 3.8% y/y vs. 4.2% in May. Core CPI is seen rising 0.2% m/m and print at 2.9% y/y for a second straight month."

"June PPI (Wednesday) and July University of Michigan sentiment survey (Friday) will round out the inflation picture, while the Fed Beige Book (Wednesday) will offer fresh anecdotal insights on US economic activity."

"June retail sales report is due on Thursday. Total retail sales are expected at 0.3% m/m vs. 0.9% in May as a World Cup related spending boost offsets lower receipts at gas stations. The more policy relevant control-group sales - which exclude cars, gas, food services, and building materials – is seen rising 0.5% m/m vs. 0.7% in May, consistent with resilient consumer spending activity."

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