Today’s Market Outlook
All Eyes on the FOMC: Will the Stagnant Dollar Market Finally Break into Motion?
■ Market Overview
The Federal Open Market Committee meeting is today’s most important market event.
Although the base-case scenario is for the Federal Reserve to leave interest rates unchanged, markets are still assigning a meaningful probability to another rate increase.
According to CME FedWatch, the probability of no change stands at 70.6%, while the likelihood of a 25-basis-point increase is priced at 29.4%.
Even if the policy rate is left unchanged, the dollar could strengthen if the statement or voting pattern reveals a more hawkish shift.
The central question is whether the FOMC announcement will finally provide direction to a dollar market that has remained largely stagnant ahead of the decision.
■ Federal Open Market Committee
The Federal Reserve is widely expected to leave its policy rate unchanged.
However, markets are also looking for language in the statement that highlights persistent inflation risks or leaves the door open to further tightening.
One important focus will be whether any policymakers dissent in favor of a rate increase.
Dallas Fed President Lorie Logan and Cleveland Fed President Beth Hammack are among the officials viewed as potentially favoring tighter policy.
If several members vote for an increase, markets may conclude that hawkish sentiment is gaining momentum within the Federal Reserve.
That could push U.S. Treasury yields higher and trigger renewed dollar buying.
By contrast, a unanimous decision to hold rates unchanged, combined with few meaningful changes to the statement, could disappoint investors who had positioned for a more hawkish outcome and lead to dollar selling.
■ Fed Chair Warsh’s Press Conference
Federal Reserve Chair Kevin Warsh is scheduled to hold a press conference following the policy announcement.
Chair Warsh has generally avoided providing explicit forward guidance on future policy decisions, and he may maintain an intentionally cautious and noncommittal tone.
Markets will focus on several key issues:
・How much confidence the Federal Reserve has in the recent moderation in inflation
・Whether policymakers are concerned that higher oil prices and tariffs could push inflation higher again
・Whether Chair Warsh rules out a rate increase at the September meeting
・How he assesses the resilience of the labor market and the broader economy
Even if the press conference provides little clear direction, inflation data released before the September meeting, including the Consumer Price Index and the Personal Consumption Expenditures Price Index, will likely play a decisive role in the next policy decision.
■ U.S. Dollar
The dollar remains directionless ahead of the FOMC announcement.
The previous session saw some adjustment toward dollar strength, while the Tokyo session initially brought renewed dollar selling.
The currency later recovered as tensions in the Middle East intensified.
During early New York trading, USD/JPY rose into the 163.70 area, while EUR/USD fell toward 1.1375 and GBP/USD declined to around 1.3279.
However, trading ranges remain limited, as market participants are reluctant to establish aggressive positions before seeing the FOMC outcome.
■ USD/JPY
USD/JPY is trading in the upper 163 area.
The pair briefly came under pressure ahead of the FOMC but recovered as geopolitical tensions increased and crude oil prices moved higher.
President Donald Trump said Iran would be hit hard in response to an attack on Jordan, helping push New York crude oil futures to $84.65 per barrel.
Safe-haven demand for the dollar subsequently increased, lifting USD/JPY back into the 163.70 area.
However, intervention concerns are likely to intensify as the pair approaches 164.
If the FOMC delivers a hawkish message and USD/JPY rises rapidly above 164, markets may become increasingly alert to verbal intervention or direct currency-market action by the Japanese authorities.
■ Middle East Developments
Tensions in the Middle East are intensifying once again.
Iran reportedly launched ballistic missiles toward a U.S. military base in what was described as a surprise attack.
President Trump subsequently adopted a strongly confrontational stance toward Iran, contributing to gains in both crude oil and the dollar.
New York crude oil futures initially surged from the $79 area into the $83 range before extending the advance to $84.65 during early U.S. trading.
If oil prices continue to rise, concerns about a renewed acceleration in U.S. inflation could strengthen expectations for further Federal Reserve tightening.
At the same time, higher energy prices could weigh on equities.
A deeper risk-off move could also generate demand for the yen.
Although FX markets remain relatively subdued ahead of the FOMC, Middle East headlines could still trigger sharp and temporary price movements.
■ EUR/USD and GBP/USD
EUR/USD remains under pressure in the upper 1.13 area.
Renewed dollar buying during early New York trading pushed the pair down to around 1.1375, marking a fresh intraday low.
GBP/USD also declined toward 1.3279.
A hawkish FOMC outcome could push both pairs toward lower levels.
By contrast, if the Federal Reserve holds rates unchanged and Chair Warsh delivers a cautious press conference, recent dollar buying could reverse and allow both the euro and sterling to rebound.
■ Equity Markets
Equity markets remain volatile, particularly among AI-related shares.
Major U.S. companies including Microsoft, Meta, and Starbucks are scheduled to report earnings today.
The Microsoft and Meta results will be especially important for assessing the sustainability of AI-related investment, the burden of capital expenditure, and the outlook for future earnings growth.
Stronger-than-expected results could support technology shares and the broader equity market.
However, concerns about heavy investment costs or slowing growth could trigger another round of selling in AI-related stocks.
With the FOMC announcement and major corporate earnings scheduled in the same session, U.S. equities, Treasury yields, and the dollar could all experience substantial volatility.
■ Today’s Key Economic Data
The FOMC will attract considerably more attention than today’s economic releases.
Other scheduled data include:
・UK Consumer Credit
・UK M4 Money Supply
・U.S. MBA Mortgage Applications
None of these releases is expected to materially alter the broader market trend.
Until the FOMC decision, investors are likely to remain cautious while monitoring developments in the Middle East, crude oil prices, and U.S. equity futures.
■ Key Events
Today’s principal events include:
・Federal Open Market Committee interest-rate decision
・Federal Reserve Chair Warsh’s press conference
・European Central Bank wage tracker
・U.S. weekly petroleum inventory report
・U.S. 2-year floating-rate note auction
・Bank of Canada meeting minutes
・Major U.S. corporate earnings
The weekly U.S. petroleum inventory report will attract heightened attention following the recent surge in crude oil prices.
A substantial decline in inventories could extend the oil rally and reinforce both inflation concerns and demand for the dollar.
■ Key Focus for London and New York
- Whether the FOMC leaves interest rates unchanged
- Whether any members dissent in favor of a rate increase
- Whether the statement adopts a stronger warning on inflation
- Whether Chair Warsh signals the possibility of a September rate increase
- Whether USD/JPY tests the 164 level
- Whether Middle East tensions and crude oil prices continue to rise
- The results from Microsoft and Meta
- The reaction of U.S. Treasury yields and equities following the FOMC announcement
■ Bottom Line
Today’s market remains firmly focused on the Federal Reserve policy decision.
Although unchanged rates remain the most likely outcome, markets are pricing in roughly a 30% probability of a rate increase.
Even if the Federal Reserve holds rates steady, a hawkish statement, dissenting votes, or stronger inflation warnings from Chair Warsh could trigger renewed dollar buying.
Conversely, a cautious message that places greater emphasis on moderating inflation could lead to broad dollar selling.
For now, rising geopolitical tensions and higher crude oil prices have supported safe-haven demand for the dollar, lifting USD/JPY into the 163.70 area.
However, intervention concerns are likely to increase significantly above 164.
The next major move will depend on the FOMC decision, Chair Warsh’s press conference, developments in the Middle East, crude oil prices, and major U.S. corporate earnings.
Markets will be watching closely to see whether these events finally provide direction to the recently stagnant dollar.
