USD steady ahead of key US data – BBH

US Dollar (USD) is mixed near this week’s high. JPY is underperforming as Bank of Japan rate cut bets fade to less than 10%, while commodity-sensitive currencies are modestly firmer. Futures on the S&P 500 are up, and global bonds pared back some of their recent gains, BBH FX analysts report.

Fed pivot expectations cap dollar gains

"USD will likely continue to trade within a tight range ahead of tomorrow’s release of the US September CPI and October PMI prints. The Cleveland Fed’s Nowcast model forecasts headline CPI to rise to 3.0% y/y (consensus: 3.1%) vs. 2.9% in August and core CPI to dip to 3.0% y/y (consensus: 3.1%) vs. 3.1% in August."

"Progress towards the Fed’s 2% inflation goal is stalling, but upside risks to prices are not martializing. Headline CPI inflation has yet to reflect the rise seen in the ISM prices paid indexes, which may now be topping out. More importantly, wage growth is running around sustainable rates consistent with the Fed’s 2% inflation goal given annual non-farm productivity growth of around 2%. Our base case is for the Fed to pivot more dovish by year-end, which will weigh on the USD and further fuel the rally in equity markets."

"Crude oil prices jumped to a two-week high on concerns over supply disruption. Yesterday, the US imposed sanctions on Russia’s two largest oil companies Rosneft and Lukoil, freezing their US-linked assets and banning all transactions with US persons. The fresh sanctions increase the challenge of buying Russian crude, but the supply disruption will likely be mitigated. Most Russian crude already flows through non-Western channels, paid for in local currencies, and handled by a vast “shadow fleet” outside US jurisdiction."