Dollar Markets Await Kevin Warsh’s Jackson Hole Speech as Fed‑Treasury Dynamics Shift

• Markets are monitoring former Fed Governor Kevin Warsh for clues on inflation and Treasury yields.
• Some analysts believe coordination between the Fed and the Treasury could further weaken the US dollar.

The US dollar has shown mixed performance amid rising oil prices and higher Treasury yields, which provide support. Meanwhile, the S&P rally led by NVIDIA has lifted global risk appetite, reducing demand for the greenback as a safe‑haven asset. Investors are cautious ahead of Warsh’s address at Jackson Hole.

Oil market optimism following a temporary transit route through the Strait of Hormuz is fading as Iran demands major concessions from Oman, while the US criticizes Omani actions. The White House maintains that no negotiations with Tehran are underway or planned, favoring an economic blockade.

The renewed Brent rally is reigniting concerns about accelerating inflation and pushing Treasury yields higher. If Kevin Warsh’s theory that the debt market can complement the Fed’s policy holds true, rising yields should lessen the need for additional monetary tightening, whereas falling yields could prompt the Federal Reserve to tighten policy.

The situation grows more complex with the Treasury’s involvement. Treasury Secretary Scott Bessent has called for lower interest rates on debt instruments, potentially increasing the number of hawks on the FOMC. Investors are awaiting clarification from Warsh on Treasuries, the balance sheet, and the Fed’s inflation outlook. According to JPMorgan and Morgan Stanley, the Fed Chair may succeed in convincing markets; failure could put pressure on the US dollar.

Citrini Research highlights an emerging alliance between the Fed and the Treasury. The Fed is reducing its balance sheet by selling Treasuries to banks, while the Treasury cuts issuance of long‑term bonds, driving yields down. This weakening of the dollar aligns with broader White House objectives.

A weaker greenback is welcome in Japan, where coordinated currency intervention by Washington and Tokyo has pulled USD/JPY away from 40‑year highs. However, fundamental divergences remain—interest‑rate gaps between central banks, elevated oil prices, and Treasury yields—leaving the dollar attempting a return toward ¥160.

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