US Dollar: Firm tone with sticky inflation – BBH

Brown Brothers Harriman’s (BBH) Elias Haddad notes the US Dollar (USD) is firm as United States (US) data show stalled disinflation and sticky inflation measures drifting away from the Federal Reserve’s (Fed) 2% target. Haddad expects USD to edge higher, supported by improving US labor demand and a more restrictive Fed stance, with attention turning to May Producer Price Index (PPI) and key services components.

USD supported by sticky inflation backdrop

"USD is firm. We expect USD to edge higher as the US macro backdrop of improving labor demand and sticky inflation back a more restrictive Fed policy stance."

"Yesterday, US May CPI data showed that the disinflation trend has stalled. In line with consensus, headline CPI inflation quickened to 4.2% y/y (vs. 3.8% prior), the highest since April 2023, on higher gasoline prices. Core CPI also matched consensus at 2.9% y/y (vs. 2.8% prior), but the monthly rise was -0.1ppt less than expected at 0.2% m/m (vs. 0.4% prior)."

"Importantly, the CPI measures which filter out extreme price swings, like the core services less housing CPI, Atlanta Fed sticky CPI, Cleveland Fed 16% trimmed mean CPI, and Cleveland Fed median CPI are moving further away from the Fed’s 2% target."

"US May PPI is up next (1:30pm London, 8:30am New York). Watch out for PPI Services less Trade, Transportation, and Warehousing as it partially feeds into core services less housing PCE."

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