Kevin Warsh Fed Meeting, Iran Summit, UK By-Election: FX Risks

The Federal Reserve holds its first policy meeting with Kevin Warsh at the helm this week. Donald Trump is scheduled to meet world leaders in France for talks on the Iran conflict. A by-election in northern England could trigger a contest to unseat the prime minister.

Warsh takes over the Fed at a moment of heightened uncertainty. The Iran war has pushed oil prices higher and clouded the inflation outlook. Markets are watching for any signal on the rate path from the new chair, who inherits a committee split between concerns over sticky services inflation and fears that tighter credit conditions are slowing the economy. The statement due Wednesday afternoon will be parsed for changes to the forward guidance. A more cautious tone could weigh on the dollar; a hawkish surprise would likely lift US yields and support the currency. Options markets show elevated premium for dollar puts against the euro and yen, suggesting traders are positioned for a dovish outcome, traders said.

Trump's attendance at the international summit on the Iran war adds another layer of uncertainty. The administration has faced criticism over the rising cost of the conflict and its impact on global energy markets. Any signal of a ceasefire or diplomatic progress would likely trigger a relief rally in risk assets and pressure the dollar, which has benefited from safe-haven flows since hostilities escalated. Conversely, a breakdown in talks could send crude oil higher and reinforce the dollar bid. The meetings take place Thursday and Friday, overlapping with the post-Fed adjustment window.