US Dollar: Resilient growth supports upside risks – BBH

Brown Brothers Harriman's Elias Haddad emphasizes the robust US economy driving Dollar strength, with the DXY reaching new cyclical highs. Upgraded Q2 GDP and strong Q3 forecasts from the Atlanta Fed GDPNow model bolster the optimistic perspective. USD is rising across the board, with the DXY index hitting fresh cyclical peaks. Robust US economic activity, tightening labor demand, and persistent inflation back the nearly 100 basis points of Fed funds rate hikes forecasted within the next year.

The Q2 real GDP (third and final estimate) was adjusted 0.7 percentage points higher to 2.2% SAAR, signifying upward revisions to domestic demand. The overall growth outlook remains promising. The Atlanta Fed GDPNow model projects 3.7% annualized real GDP growth in Q3, driven by robust consumer spending. Personal consumption increased by 0.6% month-over-month in August compared to 0.1% in July.

Inflation remains notably above the Fed's 2% objective. Headline PCE was 3.4% year-over-year versus 3.4% in July (downgraded from 3.7%) and core PCE stayed at 3.0% year-over-year versus 3.0% in July (downgraded from 3.3%). Rising US interest rates versus those of other major central banks maintain a policy gap, yet US economic outperformance and foreign demand for US securities could sustain an upward bias for the USD.