According to Brown Brothers Harriman’s (BBH) Elias Haddad, the US Dollar Index (DXY) is at risk of overshooting the upper end of its nearly one-year 96.00-100.00 range in the near term, driven by resilient US economic growth that continues to outpace other major economies [1]. Haddad points to strong US GDPNow estimates, with the Atlanta Fed model projecting annualized US real GDP growth of 4.3% in Q2 compared to 2.0% in Q1, and May PMI data indicating a widening US growth advantage over global peers [1].
The upcoming release of US April PCE data is highlighted as a key event, with headline PCE expected to rise 0.5% month-over-month or 3.8% year-over-year, compared to 0.7% m/m or 3.5% y/y in March. Core PCE is forecast at 0.3% m/m or 3.3% y/y, unchanged from March. Both headline and core PCE inflation are currently above the FOMC’s 2026 projection of 2.7%, reinforcing expectations for a more restrictive Federal Reserve policy stance [1].
Fed Chair Kevin Warsh, during his Senate confirmation hearing, expressed a preference for using 'trimmed averages' inflation measures rather than the core PCE price index. The Dallas Fed trimmed mean PCE and the Cleveland Fed 16% trimmed mean CPI are currently below core PCE, suggesting there may be room for the Fed to loosen policy. However, the FOMC's policy stance has shifted from an easing bias to a more neutral one, raising the possibility that Warsh could become the first modern Fed chair to be outvoted on policy decisions [1].
Even dovish-leaning Fed Governor Christopher Waller recently signaled a more cautious approach, stating, 'my current policy position is to hold rates steady for the near term…But I can no longer rule out rate hikes further down the road if inflation does not abate soon' [1].
CONCLUSION
The US Dollar Index is poised for potential upside as strong US economic data and persistent inflation support a more restrictive Federal Reserve stance. Market participants are closely watching upcoming PCE data and Fed communications for further direction, with risks skewed toward a stronger dollar in the near term.