Dollar remains under pressure ahead of FOMC - BBH

Global Currency Strategy Team at Brown Brothers Harriman & Co. (BBH) offered a brief overview of the US Dollar price action as we head into this week's key event risk - the highly anticipated FOMC policy decision, due to be announced later during the NY trading session.

Key quotes:

“President Trump’s State of the Union speech offered no lifeline for the dollar.  He took the opportunity to focus on the strength of the US economy.  However, details of his proposed plan to boost infrastructure spending were lacking.  And while he talked of the need for greater bipartisanship ahead, Trump offered the Democrats very little in terms of possible compromises on the most contentious issues.”

“A hawkish hold is the most likely outcome from the FOMC meeting.  Growth impulses are stronger, even though headline Q4 GDP disappointed.  The part of the economy that is the most responsive to monetary policy, final domestic purchases, rose by a robust 4.8%.  The IMF recently raised its US growth forecasts, and we would expect the Fed to follow suit.”

“US inflation and market-based measures of inflation expectations have also risen.  In the first look at Q4 GDP, the core PCE deflator rose from 1.3% to 1.9%.  The 10-year breakeven rate (the difference between the yield of the conventional 10-year note and the 10-year TIPS) has risen by about 20 bp since the December FOMC meeting and is nearly 2.10%, where it finished last week and is at three-year highs.”