USD stays firm as Fed cut bets fade - BBH

The US Dollar (USD) remains broadly supported after Fed Chair Powell's remarks tempered expectations for near-term easing. Markets now price roughly two-thirds odds of a December rate cut, down sharply from earlier in the week. While risk sentiment has cooled, we still expect a 25bps cut next month as tight policy pressures employment and inflation risks ease, BBH FX analysts report.

Powell remarks lift US yields, weigh on risk assets

"USD remains firm against most major currencies supported by an upward adjustment to US rate expectations after Fed Chair Powell cooled rate cut bets on Wednesday. Fed funds futures imply 66% probability (down from over 90% earlier this week) of a 25bps cut at the next December 10 FOMC meeting. Dampened Fed rate cut expectations has also taken the steam out of the rally in risk assets."

"We are sticking to our view that the Fed will deliver a follow-up 25bps cut to 3.50%-3.75% in December because restrictive Fed policy can worsen the already fragile employment backdrop and upside risk to inflation are not materializing. Next week's set of US private-sector data (ISM, JOLTS, ADP, Challenger job cuts, Michigan sentiment survey, NY Fed survey) will offer clues about the employment and inflation outlook. In the meantime, we doubt USD can sustain a break above the range that's held since June."

"The ongoing US government shutdown continues to see no resolution as both parties remain at an impasse. Senators are scheduled to meet again on Monday November 3. Fed speakers today include: Dallas Fed President Lorie Logan (2026 FOMC voter), Fed Presidents Beth Hammack (2026 FOMC voter) and Raphael Bostic (non-voter)."