Warsh's silence on the reaction function steepened the curve and weakened the dollar. Yen intervention, oil's 8% drop on Iran talks, and the ISM data set up Friday's NFP.
Alpha Score of 61 reflects moderate overall profile with strong momentum, weak value, moderate quality, moderate sentiment.
Kevin Warsh left the market hanging. The Fed chairman delivered no forward guidance at the June decision, and the yield curve steepened. The dollar slid. The message from traders: the Fed's credibility on price stability is fraying, FP Markets Chief Market Analyst Aaron Hill wrote in a note.
The Fed held rates as expected. Three dissenters – Logan, Hammack and Kashkari – voted against the hold. The statement was barely changed from April. The only real surprise was the absence of communication about the reaction function. "The market is essentially calling Warsh's bluff," Hill said.
Warsh did address the recent rise in nominal and real yields. He said those moves had tightened financial conditions. Hill sees that as giving the Fed room to stay on hold for now. Two more inflation and jobs reports land before the September meeting. "A lot can change," Hill said.
USD/JPY closed last week down 600 pips, or 4%. It was the first daily close below the 200-day moving average since October 2025. The catalyst was a coordinated intervention by Japan's Ministry of Finance and the U.S. Treasury. The yen had touched 40-year lows. It was the first joint intervention since 2011.
The usual playbook would have carry traders buying the dip. Hill said that may not work this time. "Given that both sides are saying that further intervention is possible, dip-buying may be thin at current levels."
Without the Bank of Japan hiking rates, the yen's outlook is not a game-changer, Hill said. Two further rate hikes are priced in by March 2027. The market sees a 40% probability of a hike at the September meeting, up from 20% a week ago.
Geopolitics shifted the risk mood this morning. President Trump called off a planned attack on Iran. Talks between the U.S. and Iran are reportedly set to go ahead. The Strait of Hormuz remains largely closed. Hill said if talks happen, the Strait will be "front and centre."
Risk appetite jumped. Brent and WTI crude fell about 8% at the open. The dollar index was modestly on the back foot, with losses more evident against the yen. U.S. Treasury yields were lower across the curve. European and U.S. equity index futures were higher. Asia-Pacific shares took a hit, led by South Korean chipmakers.
This week's data calendar is centred on the July non-farm payrolls report due Friday. The June JOLTS survey is out Tuesday. The July ADP report lands Wednesday. The ISM manufacturing PMI hits today at 2 p.m. GMT. The services report follows Wednesday. Fed speakers Schmid and Cook are scheduled Wednesday, and Barkin on Friday.
The median market expectation for the ISM manufacturing PMI is 54.0. That would match May's reading, the highest since mid-2022. The estimate range runs from 57.0 to 52.8. Hill said the new orders and employment sub-indexes, each contributing 20% to the main PMI, will be closely watched. A strong reading there could point to a solid NFP print. The market expects NFP to come in at around 83,000, up from 57,000 in June.
June CPI, PPI and PCE data all came in below expectations. Hill said a strong headline with higher prices paid and employment could lift yields and the dollar. Given the risk of further yen intervention, "the best-case scenario for all tier-1 US data, for me, could be a solid miss, perhaps opening the door to shorting opportunities in line with downside sentiment."
The non-farm payrolls report is due Friday at 8:30 a.m. ET.
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