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Hawkish Fed hold and data keep US dollar supported, BBH says

BBH points to expectations of a 3.5% to 3.75% Fed funds target hold for a fifth straight meeting, alongside forecasts for June PCE and Employment Cost Index data.

Reported · Written up by our desk · Major Pairs

Brown Brothers Harriman analyst Elias Haddad expects the US dollar to remain supported in the near term as the Federal Reserve is likely to hold a hawkish stance, supported by firm growth, softer inflation, and shifting FOMC vote dynamics.

BBH expects a Fed hold of the target range for the funds rate at 3.50% to 3.75% for a fifth straight meeting. In BBH’s view, Fed funds futures price about 38% odds of a 25 bps rate increase this week, with roughly 50 bps of additional tightening by year end.

Attention, according to FXStreet, will also focus on the FOMC vote split and comments on how durable the inflation risk is. BBH’s base case is a 10 to 2 split in which Cleveland Fed President Beth Hammack and Dallas Fed President Lorie Logan dissent in favor of a 25 bps hike, with the risk of a more hawkish 9 to 3 outcome if Fed Governor Lisa Cook joins the dissent.

For the US economic calendar, BBH cites expectations for Q2 GDP at 2.1% SAAR versus 2.1% in Q1, with headline PCE seen falling 0.1% month over month and easing to 3.7% year over year, while core PCE is forecast to rise 0.2% month over month and slow to 3.3% year over year. FXStreet also notes BBH’s references to closely watched releases including Q2 GDP, June PCE, and the Employment Cost Index.

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