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This week, currency markets face multiple cross-currents: volatile oil prices, Powell's stance on whether he will remain as Fed Governor until Jan 2028, potential rate-hike pivots at G7 central bank meetings, and the War Powers Resolution vote and deadline. The DXY Index’s rebound has stalled around 99, following its decline from 100.6 to slightly below 98 in the first half of this month.
The US Department of Justice’s (DOJ) decision on April 24 to drop its criminal probe into Fed Chair Jerome Powell has technically fulfilled Republican Senator Thom Tillis’ demand to support Kevin Warsh’s confirmation. The Senate Banking Committee should confirm Warsh as Powell’s successor at a scheduled confirmation vote on April 29 at 10:00 AM ET, hours before the FOMC’s interest rate decision. Warsh’s nomination had a dovish tilt, helping US equities hit new record highs over the past week despite Brent crude prices returning above $100 per barrel.
Powell’s final FOMC press conference as Chair will likely be dominated by the question of whether he intends to remain as Governor until January 2028. Powell has consistently maintained that he has "no intention of leaving" until the oversight process reaches a conclusion of "transparency and finality." While the DOJ technically signalled a retreat by referring the USD2.5 billion Fed HQ renovation probe to the Fed’s Office of Inspector General (OIG), in line with Powell’s request, the resolution remains fragile. By explicitly stating that it has no hesitation to restart a criminal investigation should new facts emerge from the OIG report, the DOJ has framed its decision as a partial reversal in spirit rather than a total exoneration.
The Bank of Japan, European Central Bank, and Bank of England are expected to remain on hold this week, but the market is pricing a hawkish pivot for rate hikes at their following meetings, diverging from expectations that Warsh’s confirmation would dampen the Fed’s high-for-longer USD premium.
Against this backdrop, a “hawkish hold” at the April 27-28 BOJ meeting will be important to offset the upward pressure on USD/JPY near 160. Apart from Governor Kazuo Ueda needing to pivot towards a 25-bps hike to 1% at the June meeting, Finance Minister Satsuki Katayama needs to recognize that markets are becoming desensitized to her verbal jawboning without follow-through action. Moreover, BOJ and MOF are also aware of the zero-sum game posed by the triple trap of higher oil prices, rising JGB yields, and JPY depreciation.
Additionally, Brent crude prices have risen back above $100 per barrel ahead of this week’s War Powers Resolution vote on April 29, which will determine if the Operation Epic Fury enters an unauthorized phase. The Trump administration is attempting to preserve its operational freedom before the formal 60-Day Constitutional Limit expires on May 1, with the dual blockade in the Strait of Hormuz and the stalled Pakistan-mediated US-Iran ceasefire talks. Markets are caught between fears of a prolonged war of attrition that could keep 20% of global oil supply under threat and hopes of a surprise off-ramp before President Donald Trump’s summit with President Xi Jinping in China in mid-May.
Quote of the Day
“Where words fail, music speaks.”
Hans Christian Andersen
April 27 in history
Ludwig van Beethoven composed his famous piano piece "Für Elise" in 1810.
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