US Dollar should continue to gain – BBH

Economists at BBH note that markets will pay attention to macroeconomic data releases from the United States with the Federal Reserve going into the quiet period until the May 2-3 FOMC meeting.

Fed tightening expectations have picked up bit

"Between now and next Wednesday’s Fed decision, we won’t get any top tier data but we will get some important clues.  This week, Chicago Fed NAI today and Q1 GDP data Thursday will tell us about the real sector, while PCE and ECI data Friday will tell us more about the inflation outlook.  Next week, Monday brings ISM manufacturing PMI."

"We will get some more labor market readings as next Tuesday brings JOLTS data and next Wednesday brings ADP private sector jobs.  NFP won’t come until after the FOMC decision.  Recent resilience in the U.S. economy helped push UST yields higher and we look for that process to continue.  If so, the dollar should continue to gain as well." 

"Fed tightening expectations have picked up bit.  WIRP suggests over 90% odds of 25 bp hike at the May 2-3 meeting, up from 80% at the start of last week and 70% at the start of the week before that.  To us, a hike next week is a done deal.  There are about 15% odds of another 25 bp hike in June.  Between the May 2-3 and June 13-14 meetings, the Fed will have digested two more job reports, two CPI/PPI reports, and one retail sales report."

"At this point, a pause in June might just be the most likely outcome but it really will depend on how all that data come in.  After all that, one cut is still priced in by year-end vs. two at the start of last week.  In that regard, Powell has said that Fed officials “just don’t see” any rate cuts this year.  We concur."