US Dollar: Steadies on risk-off flows – BBH

Brown Brothers Harriman’s Elias Haddad notes that the Dollar has recovered part of this week’s losses as a tech-led equity selloff spurs a modest flight to safety. Haddad expects USD to edge somewhat higher over the next couple of months, supported by US economic outperformance, hawkish Federal Reserve pricing and strong foreign demand for US long-term securities.

Flight-to-safety support as equities slide

"USD recovered some of this week’s losses as the tech-led equity market plunge triggered a modest flight to safety."

"We expect USD to edge a bit higher in the next couple of months underpinned by: (i) US economic outperformance, (ii) the Fed's resolve to get inflation back to 2% anchoring hawkish rate pricing, and (iii) strong foreign demand for US long term securities."

"US consumer spending activity remains resilient. In line with consensus, US retail sales rose 0.2% m/m vs. 1.0% in May and the more policy relevant control-group sales - which exclude cars, gas, food services, and building materials – increased 0.5% m/m vs. 0.8% in May. Retail sales in real term is particularly solid given that headline CPI fell -0.4% m/m in June."

"July University of Michigan sentiment survey is also due today (3:00pm London, 10:00am New York). Long-term inflation expectations are critical to watch for confirmation that long-term inflation expectations remain anchored."

"Today, US June housing starts, import and export prices, and industrial production data will feed into the Atlanta Fed GDPNow model update. As of yesterday, the model estimates annualized US real GDP growth of 1.7% q/q in Q2, up from 1.4% but down from the 4.3% peak in mid-May and below its 3.0% average since late April."