Brown Brothers Harriman’s (BBH) Elias Haddad notes that the Dollar stabilized after a sharp sell-off linked to suspected USD/JPY intervention, but argues the broader USD rally since May has likely ended, with US Dollar Index (DXY) expected to move back into a 96.00–100.00 range. Haddad highlights softer US inflation data, solid domestic demand, and concerns that Fed Chair Kevin Warsh may fall behind the curve.

DXY expected to retreat from highs

"We believe the USD rally from May has run its course, with DXY poised to retreat back into a 96.00-100.00 range. The tailwind to USD from resilient US economic activity is outweighed by Fed Chair Kevin Warsh failure to turn tough inflation rhetoric into a credible policy, increasing the risk the Fed falls behind the curve in containing inflation."

"The June US PCE data was reassuring. However, Warsh risks a credibility gap by relying on markets to do the Fed’s tightening instead of acting itself."

"US June PCE largely matched consensus, confirming the slowdown in inflation already signaled by the June CPI and PPI data two weeks ago. Headline PCE fell -0.1% m/m vs. +0.4% in May due to lower gasoline price, while the annual rate eased to 3.7% vs. 4.1% in May (FOMC 2026 projection: 3.6%)."

"US Q2 real GDP growth underwhelmed but details show domestic demand activity is rock solid. Real GDP rose 1.5% SAAR (consensus: +2.0%) vs. 2.1% in Q1."

"The US Q2 Employment Cost Index (ECI) is today’s data highlight (1:30pm London, 8:30am New York). ECI wages & salaries - the Fed’s favorite wage data – was 3.4% y/y in Q1 consistent with the Fed’s 2% target given average annual labor productivity growth of 2.1%."

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