United States Dollar: Fed focus and Warsh risk – BBH

Brown Brothers Harriman’s Elias Haddad notes Brent Oil is testing its 200-day moving average while the Dollar consolidates after giving back more than half of its post-May payrolls gains. The bank says a hawkish Fed hold would support a firmer Dollar, but warns Chair Kevin Warsh’s stance on guidance and inflation could unsettle Dollar bulls.

Fed hold and Warsh communication risks

"Brent crude oil prices continued to slide, testing important technical support at the 200-day moving average of $78.46/bbl. USD is consolidating just above this week’s low, after surrendering more than half of its post May non-farm payrolls gains. A hawkish Fed hold will support a firmer USD, but Fed Chair Kevin Warsh risks spoiling the dollar bull party."

"The center of gravity on the FOMC has shifted from an easing to a neutral bias as US labor demand has improved and inflation has moved up. As such, the focus will be on the degree of hawkishness and whether it validates Fed funds futures pricing for a 25bps hike by year end or leans against it. The clearest signal will come from the dot plot, which is expected to shift from implying a 25bps cut in 2026 to a median projection consistent with a 25bps hike."

"Warsh does not believe in forward guidance, so expect him to downplay the importance of the SEP and dot plots. Warsh also said he preferred to follow “trimmed averages” inflation as opposed to core PCE. The Dallas Fed trimmed mean PCE and the Cleveland Fed 16% trimmed mean CPI are currently below core PCE, implying room for the Fed to loosen policy."

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