US Dollar: Restrictive Fed backdrop supports gains – BBH
Brown Brothers Harriman’s (BBH) Elias Haddad notes the US Dollar (USD) is strengthening as firm Oil prices lift bond yields and weigh on equities, while the US-China summit delivered only marginal diplomatic progress. Haddad argues the United States (US) macro backdrop points to a more restrictive Federal Reserve (Fed), with resilient consumption and strong GDPNow estimates underpinning USD support over the coming months.
Restrictive Fed narrative underpins Dollar
"USD is powering forward against most currencies. Firmer crude oil prices are pushing bond yields higher and weighing on equities."
"The US-China summit concluded with marginal diplomatic breakthrough. On trade, the relationship between the two countries has shifted from de-escalation to “constructive strategic stability”, as Chinese President Xi Jinping put it."
"The US macro backdrop argues for a more restrictive Fed which is USD supportive. The underlying disinflationary trend has stalled, the labor market is stabilizing, and consumer spending is resilient."
"Nevertheless, US real personal consumption expenditure (PCE) has been resilient, contributing to half the 2% annualized real GDP growth over Q1. Going forward, the latest Atlanta Fed GDPNow model estimates annualized real GDP growth of 4.0% in Q2 (up from 3.8% previously) with PCE again driving nearly half that expansion (+1.87ppt)."
"The US swaps curve has adjusted higher in favor of USD, pricing in 35bps of hikes in the next twelve months, up from 25bps earlier this week. Today’s US April industrial production data is unlikely to shift the dial on rate expectations (2:15pm London, 9:15am New York)."
(This article was created with the help of an Artificial Intelligence tool and reviewed by an editor.)
Disclaimer: The content of this article solely reflects the author's opinion and does not represent the platform in any capacity. This article is not intended to serve as a reference for making investment decisions.
You may also like
SOL Bulls Face a Challenge as Solana Rally Shows Signs of Exhaustion
Reshaping Keynesian Thought Recognized with Nobel Prize! American economists Hall and Woodford reveal the underlying logic of consumption decisions and central bank policies
The Royal Swedish Academy of Sciences announced on October 12 that the 2026 Nobel Prize in Economics will be awarded to American economists Robert Hall and Michael Woodford, in recognition of their outstanding contributions to foundational microeconomic research for macroeconomic stability policy.
TSMC Q3 Earnings Preview: 2nm Mass Production, Strong AI Demand, HSBC Raises Target to 3,800 TWD
According to Bloomberg's calculations, TSMC's revenue for the third quarter reached NT$1.49 trillion, mainly driven by strong volume growth in 2nm processes and high utilization rates for 3nm and 5nm processes. Bank of America and HSBC have both raised their target prices, with the highest projection reaching NT$3,800. The company is expected to maintain strong growth momentum in the fourth quarter due to price increases and migration to advanced processes. Capital expenditures will remain high to strengthen its core position in AI infrastructure.
The weakest borrowers can no longer hold on! Morgan Stanley: CCC-rated credit spreads have surpassed 1000 basis points, bank stocks experience the most extreme overselling in 33 years.
U.S. stock indices are only 0.2% away from all-time highs, but there is turbulence beneath the calm surface: CCC-rated bond spreads have exceeded 1,000 basis points, marking the widest level since 2023 and credit differentiation has reached historic extremes. The gap in RSI between bank stocks and the S&P 500 is the largest in 33 years, indicating deep overselling; 10-year U.S. Treasury yields have soared to 5.30%, a new high since 2002. The upcoming bank stock earnings season, kicking off this Tuesday, is viewed as a crucial moment to test whether the market can bridge the gap between "fundamental resilience and investor concerns."
Crypto prices
More
