US Dollar: Fed backdrop and data focus – BBH

Brown Brothers Harriman’s (BBH) Elias Haddad notes that renewed US–Iran tensions have lifted the Dollar, Oil and global bond yields, with a restrictive Federal Reserve (Fed) backdrop seen as supportive for further Dollar strength. Haddad highlights stabilizing US labor market signals from April JOLTS and focuses on upcoming ADP, ISM services and Beige Book releases for confirmation of the macro narrative.

Dollar supported by data and geopolitics

"US and Iran traded blows again overnight raising doubts about any imminent deal to end the Strait of Hormuz blockade. Crude oil prices extended yesterday’s gains, global bond yields are firmer, and USD is up against most major currencies. The US macro backdrop that backs a more restrictive Fed policy can drive USD higher."

"The April JOLTS remained consistent with a stabilizing US labor market. The hiring rate fell from a two-year high of 3.5% in March to 3.2% in April. But the outlook for labor demand has improved as the job opening rate surged 0.4ppt to 4.6% in April, matching the November 2024 high."

"Today, the spotlight is on the May ADP employment report and ISM services index. The Fed Beige Book will offer fresh anecdotal insights on US economic activity."

"ADP private payrolls print is expected at +120k vs. +109k in April. For reference, the ADP weekly employment preliminary estimate showed private employers added an average of +35.75k jobs a week for the four weeks ending May 9."

"The ISM services index is expected to improve 0.2ppt to 53.8 driven by a slower contraction in employment. The Prices Paid sub-index is seen rising 1.6ppt to 72.3, the highest since August 2022, and indicative of upside risk to inflation."

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