Brown Brothers Harriman’s (BBH) Elias Haddad highlights that the Dollar is advancing broadly as a hawkish Federal Reserve stance combines with strong US economic outperformance. September PMI data significantly beat other major economies, while higher real Treasury yields reflect robust private sector growth. BBH also notes extended US-China trade truce, keeping geopolitical risk in focus for USD performance.

Fed hawkishness and growth back USD

"USD is powering forward against most major currencies. A hawkish Fed and widening US economic growth outperformance suggest USD can keep flexing its muscle. Yesterday, Fed Governor Michael Barr’s warned that “further policy adjustments are likely to be needed to ensure inflation comes down to target in a timely fashion.”"

"Today, New York Fed President John Williams highlighted the US economy shows “remarkable resilience”, inflation remains the “big challenge”, and “another rate hike may be appropriate by the end of the year.” Barr and Williams’ comments strengthen the case for additional Fed funds rate hikes."

"In parallel, the US September PMI surprised to the upside, outpacing the Eurozone, UK, and Japan. The US composite PMI increased to a 62-month high at 58.4 (consensus: 55.3) vs. 56.0 in August. The details showed services growth quickened to a 59-month high, manufacturing rose to a 53-month high, and price pressures intensified."

"The same forces lifting USD are driving Treasury yields higher and contributing to the global bond market selloff. US 10-year Treasury yields surged to 5.14%, the highest level since July 2007. The breakdown shows 10-year breakeven inflation rates edged up a bit on firmer crude oil prices."

"The geopolitical focus is on the one-day summit between Chinese President Xi Jinping and President Donald Trump. Treasury Secretary Scott Bessent confirmed yesterday that both countries agreed to extend their trade war truce, which was set to expire on November 10, until January 10. Still, Bessent questioned whether a bigger trade deal with China can be done."

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