US Dollar Finds Support in Strong ISM Data and Fed Hike Expectations

Elias Haddad of Brown Brothers Harriman notes that the US Dollar has moderated recent gains but remains supported by robust US economic data and expectations of further Federal Reserve tightening. The September ISM services and manufacturing indexes indicate sustained growth, while the Prices Paid components signal rising inflationary pressures. Fed funds futures still anticipate a 25 basis point rate hike to the 4.00-4.25% range by December, bolstering the Dollar's outlook.

According to Haddad, the ISM data reinforces the Fed's bias toward tighter monetary policy, providing a positive backdrop for the Dollar. The Atlanta Fed's GDPNow model estimates third-quarter annualized real GDP growth at 3.7%, though sustaining this pace alongside fiscal consolidation remains challenging. Historical trends and projections from the Congressional Budget Office suggest maintaining such growth is unlikely.

The upcoming US August trade balance report will influence the Atlanta Fed's updated GDPNow estimate. Several Fed officials, including John Williams, Alberto Musalem, Michelle Bowman, and Jeffrey Schmid, are scheduled to speak, potentially offering further insights into the central bank's policy stance.