US Dollar: Fed pause keeps December hike in play – BBH

Brown Brothers Harriman's Elias Haddad predicts the Federal Reserve (Fed) will maintain the Fed funds rate at 3.75-4.00% during this week's meeting. Futures pricing suggests only a slight chance of an actual rate change. The strong US economic data and inflation pressures are expected to continue tightening monetary policy. September's Personal Consumption Expenditures (PCE) Price Index and Q3 GDP are projected to be firm, supporting the US Dollar (USD).

The Federal Open Market Committee (FOMC) is anticipated to keep the Fed funds target range unchanged at 3.75-4.00% after a 25 basis points increase in September. Some key Fed officials have urged patience, leading to a pause in rate hikes. Futures markets indicate a mere 10% probability of a rate hike this week, with a December 9 increase already priced in.

The October composite PMI indicates sustained robust private sector growth, while the sharp rise in selling prices highlights upside inflation risk. Upcoming September PCE and Q3 real GDP data will serve as the next economic data checks. PCE is forecasted to increase 0.5% month-over-month and 3.6% year-over-year, while core PCE is expected to rise 0.3% month-over-month and 3.1% year-over-year.

Real GDP growth is projected to rise to 3.2% annualized, driven by consumer spending and investments in artificial intelligence. The Atlanta Fed's GDPNow and New York Fed GDP Nowcast estimate Q3 growth at 3.5% and 2.7%, respectively. While the US Dollar is supported by strong economic activity and rising price pressures, the November RBA rate hike and a forthcoming FOMC meeting could present opportunities for other currencies.