Fed pivot expectations weigh on USD
💵 USD Steady Ahead of Key CPI Data – BBH
The United States Dollar (USD) remains mixed near this week’s highs as markets await the release of September’s Consumer Price Index (CPI) data, scheduled for Friday. Analysts at BBH note that expectations of a policy pivot by the President of the United States’ administration and the Federal Reserve are capping further gains in the USD.
“USD is likely to continue trading within a tight range ahead of tomorrow’s release of the United States September CPI and October PMI figures,” BBH analysts report. According to the Cleveland Fed’s Nowcast model, headline CPI is forecast to rise to 3.0% year-over-year (consensus: 3.1%) versus 2.9% in August. Core CPI is expected to dip to 3.0% (consensus: 3.1%) from 3.1% previously.
While progress toward the Fed’s 2% inflation target appears to be stalling, upside risks to prices have not materialized. Headline CPI has yet to reflect the increases seen in ISM’s prices-paid indexes, which may now be peaking. More importantly, wage growth is running at sustainable levels consistent with the Fed’s inflation goal, supported by annual non-farm productivity growth of around 2%.
BBH’s base case anticipates a more dovish pivot by the Federal Reserve before year-end, which could weigh on the USD and further support the ongoing rally in equity markets.