USD extends rally despite data blackout from shutdown - BBH

US Dollar (USD) keeps charging across the majors, closing-in on the upper bound of its range dating back to June. We're still flying blind amid the ongoing US government shutdown, with key economic data releases on hold and visibility on the economy sharply reduced. As such, USD gains largely reflect external headwinds (France's political crisis, Japan's ruling LDP leadership election results) rather than a more favorable US fundamental backdrop. That suggests USD is prone to sharp pullback as soon as global conditions normalize, BBH FX analysts report.

FOMC minutes hint at further easing this year

"The FOMC September 17-18 meeting minutes offered some context behind the "risk-management cut." Participants are generally more concerned about the labor market while inflation risks are still front of mind. The hawkish surprise from the minutes is that 'A few participants stated there was merit in keeping the federal funds rate unchanged at this meeting or that they could have supported such a decision'."

"More importantly, 'most judged that it likely would be appropriate to ease policy further over the remainder of this year.' Indeed, the FOMC 2025 median fed funds rate projection implies two more 25bps rate reduction by year-end to a target range of 3.50-3.75% (3.625%) which is in line with futures pricing."

"In our view, the risk is the Fed turns more dovish by the December 9-10 FOMC meeting because restrictive monetary policy can worsen the employment backdrop and upside risks to inflation are not materializing. Bottom line: USD downtrend is intact. Fed Chair Jay Powell delivers pre-recorded welcoming remarks today (1:30pm London, 8:30am New York). There's no Q&A. Fed Vice Chair for Supervision Michelle Bowman speaks shortly after Powell."