US Dollar (USD) is consolidating yesterday’s losses. Narrowing US-G6 rate differentials suggests the path of least resistance for USD is down. Fed policy is still restrictive and leaves scope for the Fed to deliver more easing. In contrast, most other major central banks have reached neutral policy settings and signaled an end to their easing cycle, BBH FX analysts report.

Fed expected to deliver 25bps cut in December

"Yesterday’s US economic data deluge argued for the Fed to deliver a follow-up 25bps cut to 3.50%-3.75% on December 10 (80% priced-in). Labor demand remains weak. The ADP weekly employment preliminary estimate showed private employers shed an average of -13,500 jobs a week for the four weeks ending November 8 vs. -2,500 for the four weeks through November 1. Moreover, consumers revealed ongoing concerns about job market conditions."

"Consumer spending activity is starting to show cracks. The US retail sales control group used for GDP calculation unexpectedly fell -0.1% m/m (consensus: 0.3%) vs. 0.6% in August. Also, the Conference Board consumer confidence expectations index dropped sharply in November to the lowest level since April. Upside risk to inflation has lessened. Trade Services PPI dropped to a 13-month low at 1.5% y/y vs. 2.9% in August, suggesting businesses are absorbing costs rather than passing them on to consumers."

"Report that White House National Economic Council Director Kevin Hassett is seen as a frontrunner to succeed Fed Chair Jay Powell further weighed on the Fed funds futures curve. Hasset has consistently pushed for a more aggressive pace of Fed rate cuts, recently stating that he shares President Donald Trump’s view that rates can be 'a lot lower'. Powell’s term ends in May 2026 and his position as a Fed governor continues until January 31, 2028. If Powell steps down from the Fed, the Trump administration will have another opening to appoint a Fed governor."