USD Weakness May Be Stabilizing Amid US Growth Advantage

The US Dollar's weakness may be stabilizing, according to Brown Brothers Harriman (BBH), as the country's growth advantage persists. The Treasury's buyback announcement initially pushed longer-term Treasuries lower and weakened the Dollar against all major currencies, but this is expected to stabilize.

Elias Haddad of BBH notes that the US growth edge over other major economies can offset some of the structural drag from worsening US fiscal credibility. This week's ADP private employment change for August 8 will be closely watched, as it may indicate weakening labor demand.

Fed funds futures imply a modest further Fed tightening, but BBH sees risks skewed towards a dovish repricing due to contained inflation and labor data. The US July PCE is expected to show inflation at 3.6% year-over-year, with core PCE rising 0.2% month-over-month.