US Dollar: Resilient growth supports upside risks – BBH

Brown Brothers Harriman’s Elias Haddad highlights a resilient US economy underpinning Dollar strength, with the DXY at new cyclical highs. Upward revisions to US Q2 GDP and strong Q3 estimates from the Atlanta Fed GDPNow model support the constructive outlook.

Strong data backs broader USD gains

"USD is up across the board, with the DXY index making new cyclical highs. Resilient US economic activity, improving labor demand, and sticky inflation back the nearly 100bps of Fed funds rate hikes priced over the next twelve months."

"US Q2 real GDP (third and final estimate) was revised 0.7ppt higher to 2.2% SAAR, reflecting upward revisions to domestic demand activity."

"The US growth outlook remains encouraging. The Atlanta Fed GDPNow model estimates annualized real GDP growth of 3.7% in Q3 supported by robust consumer spending. Real personal consumption rose 0.6% m/m in August vs. 0.1% in July."

"Inflation remains uncomfortably high above the Fed’s 2% target. Headline PCE was 3.4% y/y vs. 3.4% in July (revised down from 3.7%) and core PCE remained at 3.0% y/y vs. 3.0% in July (revised down from 3.3%)."

"USD gains are tracking widening US-G6 interest rate differentials. Tightening by other major central banks limits policy divergence with the Fed. However, US economic growth outperformance and strong foreign appetite for US securities can keep USD risks skewed to the upside."