US Dollar: Gains ease as focus turns to Fed commentary – BBH

Stagnant US real wages may limit expectations for a 50bps Fed rate rise in December, according to Brown Brothers Harriman’s (BBH) Elias Haddad. He notes that the Dollar Index has fallen back from its post-October CPI highs, while the USD rally appears overextended relative to interest rate differentials.

USD rally appears overextended in the near term

"The dollar index (DXY) has pulled back from its highest level since early April 2025, when President Donald Trump unveiled his Liberation Day tariffs. The USD rally was fueled by a sharp repricing in fed funds rate expectations following the hot US October CPI print and amplified by hawkish Fed rhetoric."

"Nevertheless, the USD rally may have run too far, too fast. USD has overshot the level implied by rate differentials, limiting the scope for further gains in the near-term. Moreover, pricing of a jumbo 50bps fed funds rate hike in December will likely be constrained by stagnant US real wages and the resulting headwind to consumption spending."

"Today’s second-tier US data (weekly jobless claims and October existing home sales) are unlikely to move the needle, leaving Fed speakers in focus."

(This article was created with the help of an Artificial Intelligence tool and reviewed by an editor. Find out more.)