US Dollar: Fed resilience supports gains – BBH

Brown Brothers Harriman’s Elias Haddad notes that the US Dollar is gaining ground broadly, as a hawkish Federal Reserve stance aligns with strong US economic performance. September PMI data significantly surpassed major economies, while higher Treasury yields reflect thriving private sector growth. The trade truce between the US and China continues, adding geopolitical stability to the Dollar’s rise. USD is outperforming most major currencies.

Fed Governor Michael Barr warns that “further policy adjustments may be necessary to bring inflation down to target in a timely manner.” New York Fed President John Williams highlights that the US economy demonstrates “remarkable resilience,” while inflation remains a “big challenge,” potentially warranting another rate hike by year-end. These comments bolster the argument for additional Fed funds rate hikes.

The US September PMI exceeded expectations, outpacing the Eurozone, UK, and Japan. The composite PMI reached a 62-month high of 58.4 (consensus: 55.3), with services growth accelerating to a 59-month high, manufacturing climbing to a 53-month high, and price pressures intensifying.

These positive factors for the US Dollar are also pushing Treasury yields higher and contributing to a global bond market sell-off. US 10-year Treasury yields jumped to 5.14%, the highest since July 2007. The 10-year breakeven inflation rates slightly increased due to stronger crude oil prices.

Geopolitical focus shifts to the day-long summit between Chinese President Xi Jinping and US President Donald Trump. Treasury Secretary Scott Bessent confirms that both nations extended their trade war truce, set to expire on November 10, until January 10. However, Bessent questions whether a larger trade deal with China can be reached. The FXStreet Insights Team, comprising expert journalists, reports on market observations and adds commercial insights and additional analysis by internal and external analysts.