US Dollar: Policy outlook remains in focus as data send mixed signals – BBH

The US Dollar and short-term Treasury yields came under pressure as expectations of Fed rate hikes eased, according to Brown Brothers Harriman’s (BBH) Elias Haddad. He points to Fed Chair Kevin Warsh’s patient approach to inflation and worries about a slowdown in AI investment as the drivers. Forthcoming US labour market releases, including NFP, JOLTS and ADP, are now in focus. If hiring remains steady and wage growth moderates, the data could support the Fed’s gradual approach to tightening and limit the Dollar’s gains.

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How will data and politics shape the Dollar’s outlook?

"USD and short-term Treasury yields drifted lower last week as Fed Chair Kevin Warsh struck a patient tone despite stalled progress on US inflation. Concerns about an AI investment slowdown compounded the move, casting doubt on the US growth outlook and dampening Fed rate hike expectations."

"This week’s data is mixed for USD. Steady US hiring and slower wage growth would back Warsh’s gradual approach to rate hikes and keep USD in check."

"October nonfarm payrolls (NFP) (Friday). Consensus looks for a +65k rise in payrolls vs. +29k in September, consistent with stabilizing labor demand. The unemployment rate is expected to hold at 4.2%, a tick higher than the FOMC 2026 projection of 4.1%. Average hourly earnings are forecast to rise 0.3% m/m vs. 0.1% in September, and ease at an annual pace of 2.9% y/y vs. 3.0% in September."

"Slower wage growth underscores Warsh’s confidence that inflation compensation is going the right way. However, combined with sticky inflation, slower wage growth is also squeezing real household incomes, posing a downside risk to consumer spending."

"Ahead of the NFP, the September JOLTS report (Tuesday) should reinforce the labor market’s low hire, low fire backdrop. October ADP private payrolls (Wednesday) are forecast at +67k vs. +90k in September. October Revelio Labs employment (Thursday) has no consensus but rose 56.9k in September. Revelio may offer a better NFP signal, with a reported correlation coefficient of 0.74 vs. ADP’s 0.26 since 2010 and virtually zero year-to-date."

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