US Dollar: Fed pause keeps December risk alive – BBH

Brown Brothers Harriman’s Elias Haddad notes the FOMC is widely expected to keep the Fed funds target range unchanged at 3.75-4.00%, with futures pricing only a small chance of a move. However, a likely 9-3 vote split and Chair Kevin Warsh’s inflation assessment should keep a December hike in play, leaving robust US data and price pressures supportive for the Dollar.

Fed pause but December risk lingers

"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.)