US Dollar: September hike odds stay elevated – BBH

The US Dollar has regained much of its recent decline as Federal Reserve funds futures prices suggest a 67% probability of a 25 basis point rate hike during the September 16 meeting and a 60 basis point tightening over the next year. Upcoming economic indicators, including the ISM manufacturing, Job Openings and Labor Turnover Survey, and August CPI, are expected to pressure the Dollar and maintain expectations of a September rate hike.

The August ISM manufacturing index is anticipated to come in at 55.2, slightly below the July level of 55.6, indicating resilient manufacturing activity. However, the Prices Paid index is projected to dip to a six-month low of 70.8, reflecting diminishing inflationary pressures. Meanwhile, July's JOLTS report is expected to validate the U.S. labor market's low hiring and firing dynamics.

Despite rising Treasury yields, Bessent dismisses concerns over U.S. fiscal policy, highlighting the outperformance of U.S. 10-year Treasuries compared to other global bond markets. Nonetheless, the outperformance may increase the risk of higher U.S. Treasury interest expenses, potentially weakening the Dollar during periods of fiscal stress.