US Dollar: December Risk Persists as Fed Holds Steady – BBH

With the Fed funds target range widely expected to remain at 3.75-4.00%, futures indicate little prospect of a move, according to Brown Brothers Harriman’s Elias Haddad. Nevertheless, a December rate rise should remain a possibility given the likely 9-3 vote split and Chair Kevin Warsh’s assessment of inflation. Resilient US data and price pressures therefore continue to underpin the dollar.

Fed Set to Hold as December Hike Risk Persists

"Crude oil prices are edging toward recent highs, weighing modestly on bonds. US equity futures are slightly higher. The dollar index (DXY) is firm and within reach of its October 14 intraday high at 102.95."

"The FOMC is expected to keep the Fed funds target range steady at 3.75-4.00% after raising rates 25bps in September (6:00pm London, 2:00pm New York). Calls for patience from several key Fed officials support a pause. Futures market imply only 10% probability of a hike today."

"The FOMC vote split and Fed Chair Kevin Warsh’s assessment of inflation are poised to keep a December hike in play. We lean towards a 9-3 vote to hold, with Beth M. Hammack, Neel Kashkari, and Lorie K. Logan dissenting in favor of a 25bps hike, as they did in July. Warsh is also likely to reiterate that inflation remains too high and underlying inflation pressures have yet to improve meaningfully."

"Bottom line, robust US economic activity and rising price pressures reinforce the Fed’s hawkish bias, keeping rate differentials supportive of USD."

(This article was created with the help of an Artificial Intelligence tool and reviewed by an editor. Know more.)