USD trades soft within narrow August range - BBH

The US Dollar (USD) has given back most of yesterday's gains and remains trapped in this month's narrow range. Broader headwinds from US trade protectionism, political interference at the Fed, and dovish policy expectations continue to pressure the greenback, while shrinking yield spreads versus peers reinforce the weaker bias. Upcoming jobless claims and a speech by Governor Waller will be key drivers later today, BBH FX analysts report.

Protectionism, Fed interference weigh on Dollar outlook

"USD pared back most of yesterday's gains and continues to trade within this month's narrow range. Overall, US protectionist trade policy, political interference with the Fed's independence, and a dovish Fed can further weigh on USD. The 2-year yield spread compression between the US and other major economies reinforces broad USD weakness."

"US weekly jobless claims data takes the spotlight today. Initial jobless claims are expected to dip to 230k after rising to 235k in the week ended August 16, which was the highest since June. A further pickup in new filings risks adding to concerns about the labor market and boost Fed funds rate cut bets. Fed funds futures price-in nearly 90% odds of a 25bps cut at the next September 17 meeting and a total of 50bps of easing by year-end."

"Fed Governor Christopher Waller's speech later today will also be of interest. Waller is a favorite to succeed Jay Powell when his Fed chair term ends in May 2026 and voted to cut the funds rate 25bps at the last July 29-30 FOMC meeting. According to Waller, tariffs do not cause inflation beyond a temporary increase, monetary policy is too tight, and downside risks to the labor market have increased."