The US Dollar (USD) is trading near the middle of its multi-month range as markets price a more dovish Fed easing trajectory. With US swap rates now below the FOMC’s longer-term projections, the greenback could stay on the back foot unless upcoming CPI and PMI data surprise to the upside, BBH FX analysts report.

Credit jitters surface but systemic risks remain contained

"USD is trading near the middle of its range dating back to June. We expect USD to trade on the defensive this week as the US swaps curve adjusted lower to imply a more dovish Fed easing cycle. 3-year US swaps rates are trading below the FOMC’s median 2027-2028 funds rate projections. A risk to our view is an upside surprise to US September CPI and/or October PMI prints (both Friday)."

"Meanwhile, the growing unease over a string of credit scares in the US is not a systemic concern but worth watching. Two large bankruptcies in the auto/sub-prime space (First Brands Group and Tricolor) have raised fears about banks’ growing exposures to hedge funds, private credit groups and other non-bank financial institutions (NBFI) loans."

"Encouragingly, the latest IMF Global Financial Stability Report points out that most euro area and US banks have sufficient liquidity buffers to honor their NBFI commitments. Moreover, US high yield spreads are not showing signs of strain and remain consistent with a resilient corporate sector."