US Dollar: Supported by ISM and Fed pricing – BBH

Elias Haddad at Brown Brothers Harriman highlights that the Dollar has trimmed some recent gains but retains support from strong US data and Fed expectations. September ISM services and manufacturing indexes point to resilient growth, while Prices Paid suggest intensifying inflation. Fed funds futures still discount a full 25 bps hike to 4.00–4.25% in December, underpinning the Dollar outlook.

ISM data backs Fed tightening bias

"The US September ISM indexes back the Fed’s tightening bias and is USD supportive. The headline services and manufacturing indexes point to resilient growth and the Prices Paid indexes signal inflation pressures are intensifying. Fed funds futures continue to price in a full 25bps hike to 4.00-4.25% in December."

"The Atlanta Fed GDPNow model estimates annualized real GDP growth of 3.7% in Q3. Sustaining that pace alongside fiscal consolidation could help the US grow its way to a lower debt burden."

"But that’s highly unlikely. US real GDP growth has average 2.5% in the past 10 years and the Congressional Budget Office projects the primary budget deficit (overall budget balance excluding interest expense) to average -2.1% over the next ten years, pushing federal debt to a record 120% of GDP by 2036."

"US August trade balance which will feed into the Atlanta Fed’s updated GDPNow estimate. Fed speakers include: Fed New York Fed President John Williams, St. Louis Fed President Alberto Musalem (non-voter), Fed Vice Chair Michelle Bowman, and Kansas City Fed President Jeffrey Schmid (non-voter)."