USD holds August range after rally - BBH

US Dollar (USD) is consolidating yesterday's gains while US equity futures steadied after two small down days. USD rallied across the board yesterday as the US swaps curve realigned with the Fed's more measured easing guidance. We expect USD to stabilize within its August range until next week's US jobs data. The labor market data is the most important driver for the Fed and the most critical data for monitoring downside risks to the economy now, BBH FX analysts report.

Fundamental downtrend in USD intact

"Worsening US labor market conditions will lead to a downward adjustment to the swaps curve against USD. But if the labor market proves resilient, upside for USD is limited, because the swaps curve already implies a cautious Fed easing cycle. Beyond the near-term, the fundamental downtrend in USD is intact, weighed down by US protectionist trade policies."

"Second-tier US economic data are due today and unlikely to generate much volatility: the third Q2 GDP estimate, goods trade balance, durable goods orders, existing home sales, weekly claims, and Kansas City Fed manufacturing index."

"Fed speakers include: Miran, Goolsbee, Williams, Schmid, Bowman, Barr, Logan and, Daly. Of note, the New York Fed is hosting today its annual conference on the international role of the US dollar. Our take is that US protectionist trade policies, political interference with the Fed's independence, and doubts about the impartiality of key economic data following the sacking of the Bureau of Labor Statistics (BLS) head undermine the dollar's global role."