Synopsis:

The USD continues its gradual ascent, but HSBC believes a break to new highs is unlikely in the near term. The lack of significant economic data and largely unchanged Fed rhetoric limit further immediate USD gains.

Key Points:

• Fed Speakers and Market Sentiment:

  • A light US data calendar has shifted market focus to Fed speakers.
  • Fed officials continue to signal gradual rate cuts, with room for a third consecutive cut at December’s FOMC.
  • Some Fed members, however, cite concerns about a stalled disinflation trend, hinting at potential discussions of a policy pause.

• Impact of Republican Sweep:

  • Markets have recalibrated expectations for Fed easing following the Republican clean sweep in the US elections, but Fed rhetoric remains largely unchanged.
  • Statements like Fed’s Barkin’s “we shouldn’t try to solve it before it happens” underscore a cautious approach to rate policy adjustments.

• Neutral Rate and Economic Resilience:

  • The case for a policy pause would gain traction once rates approach neutral levels.
  • With the US economy showing resilience, HSBC does not believe this threshold has been reached.

Conclusion:

While the USD remains on an upward trajectory, HSBC expects gains to remain capped for now, with no immediate catalyst for a break to new highs. Market participants should watch December’s FOMC meeting and economic data trends for further directional cues.