Fed Hold and Strong US Data Support USD

Brown Brothers Harriman's (BBH) Elias Haddad expects a hawkish Federal Reserve (Fed) decision and strong US macro data to keep the US Dollar (USD) supported in coming days.

Fed funds futures price in 38% odds of a 25bps rate increase this week, with nearly 50bps of tightening expected by year-end. The Fed's target range for the funds rate is likely to remain at 3.50%-3.75%, a fifth straight meeting.

The FOMC vote split and comments on inflation will be closely watched, with some Fed officials arguing that the risks continue to be strongly weighted toward higher inflation. Cleveland Fed President Beth Hammack and Dallas Fed President Lorie Logan are expected to dissent in favor of a 25bps hike, while Fed Governor Lisa Cook may also join.

The US economy is expected to grow at a modest pace, with real GDP forecast at 2.1% SAAR in Q2, underpinned by consumer spending and AI-related business investment. Headline PCE is seen declining -0.1% m/m, while core PCE is expected to rise +0.2% m/m.