FX Daily: Keeping an eye on the long end
The desk believes that the upcoming speech by Fed Chair Kevin Warsh at the Jackson Hole symposium could provide key insights into the direction of long-dated US Treasuries, influencing FX markets significantly. With low volatility affecting FX pairs like EUR/USD, GBP/USD, and USD/JPY, market participants are particularly focused on any signals Warsh may give regarding monetary policy. Per the full note, if Warsh adopts a hawkish tone, it might strengthen the dollar against low-yielding currencies like CHF and JPY. Conversely, any dovish sentiment emphasizing financial innovation over policy could see carry currencies underperform, especially if Treasury yields rise sharply, potentially revisiting the 5.30% mark for 30-year bonds.
What the desk is arguing
The desk observes that Warsh's address at Jackson Hole is pivotal for understanding the Fed's monetary stance, particularly its impact on long-term Treasury yields. There is uncertainty surrounding whether he will address policy directly, given the symposium's focus on financial innovation. If he does opt to clarify the Fed's position, this could have immediate repercussions for the dollar, especially against currencies with lower yields such as JPY and CHF.
Supporting this view is the current market expectation of a slight shift in pricing for a September rate hike, now hovering around 8-9 basis points. FX traders are thus hedging positions with a USD/JPY straddle suggesting a narrow range of 35 pips for today. If Treasury yields surge, as anticipated, it may disrupt carry trades and provoke volatility across lower yielding currencies.
Where it sits in our coverage
Current consensus for EUR/USD is 1.1700 with a range of 1.1200–1.2000. Specific forecasts from aligned firms include: - ing: 1.1700 (Mar26) - morganstanley: 1.2000 (Mar26) - hsbc: 1.1700 (Mar26)
This position indicates a slightly bullish sentiment, particularly given our firm’s own target is at the upper bound of the market range. Other firms have been more conservative, suggesting a wide spread of expectations, further emphasizing the uncertainty among traders moving into the symposium.
How other firms see it
General consensus among firms showcases a divide: while ing, morganstanley, and hsbc exhibit a bullish outlook, firms such as nomura are positioning for bearish trends with lower targets for both EUR/USD and other pairs, reflecting mixed sentiments across the board.
Additionally, pay attention to the close relationship between USD/JPY and the Bank of Japan's policy, as any hawkish cues from Warsh could create ripples across both pairs due to their interconnectedness in global monetary trends.
How firms align with this view
Key takeaways
- 01Warsh's Jackson Hole speech is critical for assessing Fed monetary policy direction.
- 02Expect volatility in USD/JPY, CHF, and other carry trades based on Warsh’s tone.
- 03Current FX market signals minimal follow-through from last week’s dollar debasement.
- 04Mixed targets from firms illustrate prevailing uncertainty in FX markets.
Market implications
Focus on the USD/JPY reaction today, especially if Treasury yields move sharply. A level of 5.30% on 30-year bonds may drive a stronger dollar narrative. Watch for any policy statements from Warsh that could reshape expectations ahead of upcoming Fed communications.
Risks to this view
Should Warsh lean toward dovish remarks, emphasizing innovations over traditional policy avenues, we could see a reversal in dollar strength, leading to performance issues in carry currencies. Additionally, a sudden shift in inflation expectations may unsettle Treasury yields, further impacting our near-term outlook.
EUR/USD — All Desk Targets
| Firm | Stance | YE 2026 |
|---|---|---|
Morgan Stanley | Bullish | 1.2150 |
UOB | Bullish | 1.1800 |
ING | Bullish | 1.1700 |
Articles FX Daily: Keeping an eye on the long end Published 07:45 FX Share X LinkedIn E-mail Copy link Share X LinkedIn E-mail Copy link Download At the end of a quiet week in FX, the highlight today is a speech from Fed Chair Kevin Warsh at the Jackson Hole symposium. Given that financial innovation is the theme of the event, there are no guarantees he'll go anywhere near monetary policy today. However, FX markets and risk assets in general will take their cue from how long-dated Treasuries perform Chris Turner , Francesco Pesole and Frantisek Taborsky Fed Chair Kevin Warsh takes the stage today at the Jackson Hole Symposium USD: Will Warsh go near monetary policy today?
It has been a quiet, risk-positive week for global asset markets. Volatility remains low and the picture in G10 FX has been mixed, with certainly no follow-through on the dollar debasement theme which returned last week. The FX market expects little from Kevin Warsh today, with a one-day USD/JPY straddle pricing around a 35 USD pip range today.
On Warsh, he speaks at a symposium dedicated to financial innovation and is immediately followed by speakers on tokenised finance and payment innovation. He has a 30-minute slot at 1600 CET/10ET today and there is no Q&A. It may well be that he avoids any discussion of monetary policy whatsoever and is quietly contented with market pricing of a Fed September hike having slipped back to 8/9bp.
If he does go near monetary policy, expect a reiteration of a Fed commitment to monetary policy – especially after his performance at the July FOMC unnerved the long-end of the Treasury market. We suspect FX markets will take their cue from long-dated US Treasuries today. If somehow a hawkish read emerges, then the dollar can advance against the low-yielders of CHF and JPY.
If Warsh underestimates the mood at the long-end of the market and 30-year Treasury yields spike back towards 5.30%, higher volatility will see higher-yielding carry currencies underperform and probably CHF start to outperform again as it did briefly last week. Coincidentally, at the time as Warsh is speaking, the Bureau for Labour Statistics announces its annual nonfarm payroll benchmark revisions. Consensus expects a close to +200k revision, versus a prior revision of -911k.
Any surprises here could be noteworthy. But on the subject of US macro and the Fed, next week should be much more illuminating, given all the jobs data releases, the Fed's Beige Book and a moderated discussion with Chris Waller next Thursday. We presume Warsh will do his utmost to avoid upsetting the bond market today – perhaps by avoiding monetary policy altogether – and see DXY trading in a quiet 99.00-99.30 range.
Sources & References
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