BBH expects the DXY to hold near its 200-day average but stay capped by rising yields and debt sustainability concerns.
The Dollar Index (DXY) is consolidating near its 200-day moving average, with Brown Brothers Harriman forecasting a 96.00-100.00 range for the near term. A supportive US macro backdrop, including high inflation and stable labor demand, underpins the Fed’s restrictive stance, which favors USD strength.
Markets have fully priced in a 25bps Fed rate hike over the next year. However, rising 10-year Treasury yields, nearing the 5.3% nominal GDP growth rate, are straining fiscal credibility and limiting further USD gains. Debt sustainability concerns are emerging as borrowing costs align more closely with growth.
US consumer spending remains resilient, contributing to 2% annualized real GDP growth in Q1. The Atlanta Fed’s GDPNow model projects 3.7% growth for Q2, with personal consumption expected at 1.8%, slightly above Q1 levels.