Today’s Market Outlook
Fed Chair Warsh’s Keynote Speech in Focus
Dollar and U.S. Yields Could Move Sharply Depending on His Inflation Assessment
■ Market Summary
The main event today is Fed Chair Warsh’s keynote speech at the Jackson Hole Symposium, scheduled for 23:00 Japan time.
In early London trading, yen selling is modestly dominant. USD/JPY has edged up to a fresh intraday high near 159.58. EUR/JPY has risen toward 185.86, while GBP/JPY has advanced into the 216.70 range, with yen crosses generally remaining firm.
European equities are broadly resilient, while NY crude futures are holding steady near $83. As a result, risk-averse yen buying has receded for now.
The U.S. 10-year Treasury yield is stable near 4.68%, leaving markets reluctant to take large positions ahead of the speech.
■ Fed Chair Warsh’s Speech
Since taking office, Chair Warsh has emphasized reforming the Federal Reserve’s organizational structure, while remaining relatively cautious in his communication with markets.
He does not provide explicit forward guidance or his own interest-rate projections. As a result, this speech represents one of the few opportunities for markets to assess his monetary-policy approach.
Rather than focusing on a specific timing for rate cuts, markets are likely to watch:
・How he assesses current inflation
・Whether he places greater weight on slowing labor-market risks
・How he evaluates the resilience of the economy
・Whether he refers to the need to maintain high interest rates
・Whether he signals anything regarding Fed independence
■ Inflation Assessment Is the Key
The most important driver of the market reaction will be his view on inflation.
If he emphasizes the slowdown in price growth and expresses confidence that inflation is easing, markets may conclude that the Fed will remain cautious about tightening monetary policy further.
In that case, the likely reaction would be:
Lower U.S. yields
→ Dollar selling
→ USD/JPY upside capped
→ Higher EUR/USD and GBP/USD
Conversely, if he stresses that inflation remains elevated and sticky, expectations for higher interest rates for longer, or concern about additional tightening, are likely to increase.
In that case, the likely reaction would be:
Higher U.S. yields
→ Dollar buying
→ USD/JPY approaching 160.00
→ Profit-taking pressure on equities and gold
■ Central Bank Independence and the Trump Administration
Former Chair Powell faced strong pressure from the Trump administration to cut interest rates, making the Fed’s independence a major market issue.
Chair Warsh was also selected by President Trump, making markets more sensitive to the potential influence of the government on policy decisions.
The key question will be whether he can demonstrate a clear, independent assessment of the Fed’s dual mandate of inflation and employment.
However, he may avoid concrete policy guidance and use cautious, ambiguous language. In that case, the dollar buying seen ahead of the speech could be partially unwound, creating a short-term dollar correction.
■ U.S. Fiscal Conditions and Long-Term Treasury Buybacks
Markets continue to assess Treasury Secretary Bessent’s policy of doubling long-term Treasury buybacks.
The aim is to improve supply-demand conditions for long-dated bonds and restrain the rise in long-term yields. However, with U.S. government debt at an exceptionally large level, skepticism remains that this is only a temporary measure to contain yields.
Until details emerge regarding broader fiscal-consolidation measures, the so-called “3-3-3 Plan,” the U.S. 10-year yield may remain elevated in the 4.60% to 4.70% range.
Even if U.S. yields rise, caution is still needed: if the move is driven by Treasury selling due to fiscal concerns, it may not lead to straightforward dollar buying.
■ USD/JPY and Yen Crosses
USD/JPY has risen toward 159.58, with the yen-selling environment continuing.
Resilient European equities and stable oil prices are reducing demand for safe-haven yen buying, providing support for the pair.
On the upside, the 159.80 to 160.00 area is the key resistance zone. As USD/JPY approaches 160.00, concerns over possible FX intervention by Japanese authorities are likely to increase, making price action more volatile even if the pair rises further.
On the downside, the key level is 159.00. If the speech is perceived as dovish and U.S. yields decline, a correction into the upper 158 range is possible.
■ Other Key Events
・Canada second-quarter and June real GDP
・U.S. August Chicago PMI
・U.S. August final University of Michigan Consumer Sentiment Index
・Remarks by Cleveland Fed President Hammack
・Preliminary annual benchmark revision to U.S. employment data
The annual benchmark revision is expected to show an upward revision of around 183,000 jobs. This is not expected to have the same impact as last year’s 911,000 downward revision, but a revision large enough to alter the assessment of the labor market could still move U.S. yields and the dollar.
■ Summary
Yen selling is currently dominant, supported by resilient European equities, and USD/JPY is testing the upper 159 range.
However, the market’s final direction today will depend on whether Chair Warsh views inflation as easing or still sticky.
Emphasis on easing inflation is likely to favor dollar selling, while emphasis on persistent inflation is likely to support dollar buying. If the speech remains vague, pre-speech dollar buying may be unwound.
Tonight, focus on the speech itself, the direction of the U.S. 10-year yield from around 4.68%, and whether USD/JPY approaches 160.00.
