Rate Differentials Pressure US Dollar Outlook
The US Dollar (USD) began December on a softer note against major currencies, as narrowing interest rate differentials weighed on the greenback. Markets are closely watching the release of November ISM manufacturing data and anticipating the United States President’s nomination for the next Federal Reserve chair, according to analysts at Brown Brothers Harriman (BBH).
Narrowing rate differentials: The shrinking gap between interest rates in the United States and other G6 economies has reduced the relative appeal of the USD, suggesting that the path of least resistance for the currency may be downward.
Focus on ISM manufacturing data: The November ISM Manufacturing PMI is scheduled for release today (3:00pm London, 10:00am New York). The headline index is projected at 49.0, slightly above October’s 48.7, indicating a slower pace of contraction in manufacturing activity. Sub-indexes such as Prices Paid and Employment will be closely watched. In October, Prices Paid fell to a nine-month low of 58.0, while the Employment gauge rose to a five-month high of 46.0—signs of easing inflation and moderating job losses.
Upcoming Fed chair nomination: The President of the United States stated on Sunday, “I know who I am going to pick, yeah. We’ll be announcing it.” White House National Economic Council Director Kevin Hassett is widely seen as the frontrunner to succeed Fed Chair Jerome Powell when his term ends in May 2026. Hassett has consistently advocated for a more aggressive pace of rate cuts and recently expressed alignment with the President’s view that interest rates can be “a lot lower.”
US stock futures: Futures are pointing to a lower open for US equities, reflecting investor caution amid economic uncertainty and policy speculation.
Dollar outlook: BBH analysts expect the USD to consolidate in the near term, but the narrowing rate differentials suggest continued downside pressure.