Bank of America: Warsh Press Conference Weighs on the Dollar - FJElite

The July FOMC press conference injected fresh uncertainty around the Fed’s reaction function, creating a potential headwind for the dollar just as concerns over Fed independence had begun to fade. Alongside the presumed Japanese FX intervention and continuing Middle East escalation risks, the meeting helped turn the week into an unusually active one for currency markets.

Since the FOMC, the DXY has fallen 1.4% while 2-year yields declined only 5 basis points, but 10- and 30-year yields rose by 3 and 9 basis points respectively, with 5-year, 5-year breakevens widening by 5 basis points. That combination points to growing concern around policy error and inflation credibility, with pressure concentrated at the long end of the Treasury curve. It also runs against the US administration’s preference for lower 10-year yields, leaving scope for a later policy or communication course correction.