Market Summary:
- The US Dollar (USD) is consolidating recent gains after a broad-based rally.
- US equity futures are steady following two days of mild declines.
- The USD rally was supported by the US swaps curve aligning more closely with the Fed’s cautious guidance on rate cuts.
- BBH expects USD to remain within its August range until the release of the US jobs report next week.
Key Drivers:
Labor Market as the Main Focus:
- US jobs data is currently the most important macro factor.
- It’s key for:
- Fed policy direction
- Measuring downside economic risks
USD Outlook – BBH View:
Short-Term:
- If US labor market weakens, swaps curve may shift bearishly, weighing on the USD.
- If the labor market stays strong, USD upside is limited since markets already price in a mild easing cycle.
Long-Term:
- Fundamental USD downtrend remains in place due to:
- US protectionist trade policies
- Political interference with the Fed
- Reduced credibility of economic data (after the dismissal of the Bureau of Labor Statistics (BLS) head)
Today’s US Economic Data (Low Impact Expected):
- Q2 GDP (final estimate)
- Goods trade balance
- Durable goods orders
- Existing home sales
- Weekly jobless claims
- Kansas City Fed manufacturing index
Federal Reserve Speakers (Scheduled Today):
- Miran
- Austan Goolsbee
- John Williams
- Jeffrey Schmid
- Michelle Bowman
- Michael Barr
- Lorie Logan
- Mary Daly
Special Note: The New York Fed is hosting its annual conference on the international role of the US Dollar today.
BBH Summary:
- USD’s short-term strength may continue, but long-term factors like policy risks and data credibility issues pose a threat to its global reserve status.