Economists at BBH note that they maintain their strong dollar call as Fed officials are making it clear that markets misread the Fed’s commitment to lowering inflation.

Fed tightening expectations continue to adjust

"Markets are still digesting last week’s blockbuster jobs report.  Nearly a million jobs were added in the past two months, driving the unemployment down to a new cycle low of 3.5%.  More importantly, wages continue to grow nicely and should help support consumption.  While a strong labor market does not preclude  a recession, it does drive home the point that the Fed will have more confidence to continue tightening policy in order to bring inflation down. " 

Fed tightening expectations continue to adjust.  WIRP is now showing over 75% odds of a 75 bp hike at the September 20-21 FOMC meeting.  Looking ahead, the swaps market is now pricing in a 3.75% terminal rate vs. 3.5% at the start of last week."

" We think this is the correct read and if the market gives the Fed 75 bp next month, the Fed will take it.  However, the market is still pricing in a quick turnaround by the Fed to move into an easing cycle in H1 2023.  It's pretty clear that the Fed doesn't see it that way and the data bear that out, at least for now.  Markets should also reprice these easing expectations in the coming days and weeks."