Political pressures on the Fed to cut rates appear to be moderating, lending support to USD sentiment. Addressing questions on whether Fed Chair Warsh could face pressures from Trump, Treasury Secretary Bessent noted that Trump has said that Warsh will be independent, and he further remarked that Trump understands that “bond markets have taken out more governments than howitzers”. Warsh may face lesser pressure compared to his predecessor on rate decisions, given Trump’s awareness of the negative impact on bond markets from such actions. With this backdrop, USD debasement hedges such as gold, silver, and cryptocurrencies have declined, while US 10Y Treasuries have rallied by around 10bps overnight.
Sentiment in energy markets is improving on news that US-Iran talks are slated to continue next week, according to a Pakistani official. Brent prices have slipped below USD70/bbl, returning to pre-conflict levels, and signalling a normalization in supply conditions. Lower oil prices should provide support to oil-sensitive Asian currencies such as the INR, IDR, and THB. However, idiosyncratic risks remain for IDR: MSCI has extended its review of Indonesia’s status to November, raising the possibility of a downgrade to frontier market status if reforms are deemed insufficient—potentially triggering outflows from index tracking funds.
USD/JPY has risen towards 162, keeping markets alert to the risk of FX interventions by the authorities. Japan’s Finance Minister Katayama has reiterated the possibility of “bold” actions following a call with Treasury Secretary Bessent earlier this week. Intervention risk has helped the JPY limit losses, making it the best performing G10 currency against the USD on a week-to-date basis. Separately, PM Takaichi has unveiled a JPY370trn (USD2.3trn) investment plan to be financed through public-private partnerships. While increased investment is necessary to support Japan’s growth outlook—and the country has historically executed effective industrial policy—its elevated public debt burden could be a constraint for ambitious initiatives.
Quote of the Day
“Despite everything, I believe that people are really good at heart.”
Anne Frank
June 25 in history
The immortalized personal journal of Anne Frank, titled The Diary of a Young Girl, was first published in Amsterdam in 1947.
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