USD: Defensive bias as data test Fed – BBH

Brown Brothers Harriman (BBH) expects the Dollar to trade defensively this week as US labor market softness and easing inflation support Fed funds futures pricing 50 bps of cuts by year-end. The bank highlights January NFP and CPI as key tests of Chair Powell’s claim that employment-inflation tensions have diminished, with wage and super core services inflation closely watched.

Jobs, inflation to steer Dollar

"USD will likely trade on the defensive this week as ongoing US labor market fragility and easing inflation pressures support Fed funds futures pricing 50bps of cuts by year-end."

"January CPI is due Friday. Headline CPI is expected to rise by 0.3% m/m for a third straight month and drop 2.5% y/y (lowest since May 2025) vs. 2.7% in December."

"More importantly, upside risks to prices are fading and leaves scope for the Fed to ease policy."

"Additionally, wage growth is running around sustainable rates consistent with the Fed’s 2% inflation goal given annual non-farm productivity growth of around 2%."

"Average hourly earnings are seen at 3.7% y/y in January vs. 3.8% in December while the Employment Cost Index (ECI) wages & salaries - the Fed’s favorite wage data - was 3.5% y/y in Q3."

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