USD: Risk of facing deeper Fed rate cuts – BBH

US Dollar (USD) is firmer across the board, though it continues to trade within this month’s narrow range. Nevertheless, political interference with the Fed’s independence and a dovish Fed will continue to undermine USD , BBH's FX analysts report.

Cook might return to work while legal proceedings are ongoing

"Fed Governor Lisa Cook's exit from the Fed could ultimately give President Donald Trump greater opportunity to tighten his grip on the central bank by appointing a replacement aligned with his dovish monetary policy agenda. In the meantime, Cook is seeking court approval for her continued right to carry on in her role at the Fed. If it succeeds, she could return to work while legal proceedings are ongoing."

"US consumers are more pessimistic about future job availability. The Conference Board Consumer Confidence labor differential index (jobs plentiful minus jobs hard to get) dropped 1.3 points to 9.7 in August, the lowest since February 2021 and indicative of a rapid rise in the unemployment rate. Indeed, Fed Chair Jay Powell warned last week that downside risks to employment are rising."

"Risk is the Fed delivers deeper rate cuts than the markets expect. 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."