The U.S. Dollar (USD) continues its strong upward momentum, gaining ground against major currencies even amid a data blackout caused by the ongoing U.S. government shutdown. The greenback is now approaching the upper limit of its trading range seen since June, according to Brown Brothers Harriman (BBH) analysts.
However, with crucial economic data releases suspended, traders are effectively flying blind when it comes to assessing the U.S. economy’s true condition.
Limited U.S. Data, Global Events Driving USD Strength
BBH analysts note that the current USD gains are being fueled more by external global developments than by domestic fundamentals. Ongoing political tensions in France and the leadership election results in Japan’s ruling LDP party have created volatility, prompting investors to seek refuge in the dollar.
This means that the recent USD rally may be temporary, as it could face a sharp correction once global markets stabilize and economic visibility improves.
FOMC Minutes Point to Possible Further Rate Cuts
The Federal Open Market Committee (FOMC) minutes from the September 17–18 meeting offered fresh insight into the Fed’s latest “risk-management cut.” Policymakers expressed growing concern about the labor market, while inflation risks remain a key consideration.
Interestingly, a few members favored holding interest rates steady, while the majority agreed that further easing may be appropriate later this year.
“Most judged that it likely would be appropriate to ease policy further over the remainder of this year,” the minutes revealed.
The Fed’s 2025 median projection for the federal funds rate implies two additional 25-basis-point cuts before year-end, targeting a range of 3.50%–3.75% (3.625%) — closely aligned with market expectations.
Analysts Expect a Dovish Turn Ahead
BBH analysts believe that the Federal Reserve could adopt an even more dovish stance by the December 9–10 FOMC meeting. The reasoning is simple: maintaining restrictive policy for too long could further weaken the labor market, while upside inflation risks remain muted.
“The bottom line,” BBH concludes, “is that the USD downtrend remains intact despite the recent rally.”
Fed Chair Jerome Powell is scheduled to deliver pre-recorded remarks at 1:30 PM London time (8:30 AM New York), with no Q&A session expected. Fed Vice Chair for Supervision Michelle Bowman will also speak shortly after.
USD Outlook: Strong for Now, But Fragile Beneath the Surface
While the dollar’s rally appears resilient in the short term, its fundamental support is weakening. Without fresh economic data to back the move, and with potential Fed rate cuts on the horizon, analysts warn that USD could reverse sharply once global uncertainties ease.
Until then, the greenback’s gains are likely to remain headline-driven, reflecting global risk sentiment rather than U.S. economic strength.
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