US Dollar: Hawkish Fed pricing supports Dollar into payrolls – BBH

Brown Brothers Harriman’s (BBH) Elias Haddad notes that Kevin Warsh’s hawkish Jackson Hole speech has sharply increased market-implied odds of a September Federal Reserve rate hike, supporting the Dollar and short-term Treasury yields. Fed funds futures now price a 60% chance of a 25 bps move, with upcoming US August ISM and jobs data seen as crucial in keeping a September hike in play and underpinning USD.

Warsh speech lifts hike expectations

"Warsh threw a hawkish curve ball on Friday, sending USD and short-term Treasury yields soaring. Warsh questioned whether underlying inflation “is moving to our [2%] objective, clearly and at sufficient speed,” signaling the Fed may still have more work to do."

"Fed funds futures now price in 60% odds (up from 35% before Warsh’s speech) of a 25bps hike for September 16 and imply 60bps of tightening over the next twelve months. Pricing will remain elevated into the September meeting, with the August CPI on September 11 the decisive test. Until then, this week’s US August ISM and jobs data should keep a September hike firmly in play and underpin USD."

"July JOLTS report (Tuesday) should reinforce the US labor market’s low hire, low fire backdrop. August ADP private payrolls (Wednesday) are seen at +47k vs. +44k in July."

"There is no consensus estimate for August Revelio Labs employment (Thursday), but in July it showed the economy added +79.2k jobs, when NFP lost -23k jobs. According to Revelio Labs, its employment data has a 0.74 correlation coefficient with the NFP survey."

"Nonfarm payrolls (NFP) are expected to recover in August (Friday). Consensus is looking for NFP gains of +55k vs. -23k in July, consistent with the modest improvement in weekly ADP private sector payrolls. The unemployment rate is expected to remain at 4.1% for a second consecutive month, tracking below the FOMC 2026 projection of 4.3%. Job creation may be low, but weak labor supply growth and historically low layoffs point to an economy near full employment. "

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