USD Gains Capped by Global Central Bank Tightening
The US Dollar has continued to gain strength due to widening US-G6 yield spreads and resilient US economic data, keeping Federal Reserve rate hike expectations alive in the near term. According to Elias Haddad from Brown Brothers Harriman (BBH), this support for the USD is expected to persist as long as other major central banks continue to tighten monetary policy.
However, Haddad also notes that further upside for the USD is capped due to limiting policy divergence among major central banks. This means that while the US Federal Reserve may raise interest rates, other countries' central banks are taking similar actions, reducing the likelihood of new cyclical highs for the USD.
The latest data shows that the 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. The Prices Paid index held at 71.1 (consensus: 70.8) for a second straight month, signaling ongoing upside inflation risks.