US Dollar Gains Capped by Global Central Bank Tightening

The US Dollar (USD) has seen gains due to widening US-G6 yield spreads and resilient US economic data, which keeps Federal Reserve rate hike expectations alive in the near term. According to Elias Haddad of Brown Brothers Harriman's (BBH), these factors support the USD's current performance. However, Haddad argues that further upside is capped as other major central banks also tighten their monetary policies, limiting policy divergence and reducing the likelihood of new cyclical highs for the USD.

Recent data shows that US manufacturing sector growth momentum eased more than expected in August, with the headline index dipping to a two-month low at 54.6 (consensus: 55.2) vs. 55.6 in July. This was driven by slower expansions in both the New Orders and Employment indexes, but the Prices Paid index held steady at 71.1 (consensus: 70.8), signaling ongoing upside inflation risks.

The JOLTS July survey reinforced the US labor market's low hire, low fire backdrop, with the hiring rate falling -0.2ppt to 3.2%, its lowest since February. The layoffs rate also dipped -0.1ppt to 1.0%, remaining within its 1.0-1.2% range that has held for the past two years.