FX.co ★ Dollar rises after Bessent's remarks

Yesterday, US Treasury Secretary Scott Bessent publicly endorsed the Federal Reserve's new Chair Kevin Warsh and predicted a near?term slowdown in inflation as the conflict with Iran is resolved. "I'm confident the Fed chair will steer policy to balance both inflation and economic growth," he said in response to questions after speaking at the Economic Club of New York.

The main signal was how Bessent avoided the sensitive topic of political pressure on the regulator. Asked directly whether Warsh would face pressure from Trump to cut interest rates, the Treasury secretary stressed that the president spoke about Fed independence at the swearing?in ceremony. He cited an illustrative remark he attributed to Trump — that bond markets have toppled more governments than guns — the implication being clear: the administration understands that trying to force a rate cut amid rising inflation would trigger a sell-off in the bond market and push yields higher, which is politically more dangerous than a high policy rate. Let me remind you that a week ago, Kevin Warsh, at his first policy meeting, left the rate unchanged despite long?standing calls from Trump to ease.

Bessent's inflation outlook rests entirely on the Iran factor. He said that now, with the conflict behind us, gasoline prices will fall again and inflation will return to target.

Notably, Bessent called the 60-day waiver allowing the sale of Iranian oil a net benefit for global markets and part of the negotiating process with Tehran. That is an acknowledgement that returning Iranian barrels to the market is a deliberate tool for pushing prices down, not merely a byproduct of diplomacy.

The picture is complicated by the data due out on Thursday. The Fed's preferred inflation gauge, the PCE index, is expected to show a 4.1% year-on-year increase for May — more than double the regulator's 2% target. The core measure is forecast at 3.4%. Those are very high readings and explain why the market has shifted from expecting rate cuts to expecting hikes this year. Bessent's optimism about a quick return of inflation to target is, for now, more hope than fact, and Thursday's data could seriously undermine that hope.

Bessent's comments on the dollar also drew attention as the US currency strengthened to a seven?month high. Asked about the apparent contradiction between a strong dollar and the competitiveness of US industry, he said those goals are not mutually exclusive. His remark that the exchange rate is "just a number on the screen" for him sounded like an attempt to distance the administration from daily currency moves. For the market, it signals that the administration does not intend to actively intervene in the FX market despite rhetoric about industrial revival.

Technical view on EUR/USD

Buyers now need to focus on taking out 1.1385. Only that would allow them to target a test of 1.1415. From there, a move to 1.1450 is possible, but doing so without support from major players will be difficult. I would expect significant buying only if the pair falls to around 1.1350. If there is no buying interest there, it would be better to wait for a renewed low at 1.1315 or to open long positions from 1.1270.

Technical view on GBP/USD

Pound buyers need to take out the nearest resistance at 1.3230. Only then can they target 1.3270, beyond which it will be hard to break through. The farther target is around 1.3325. If the currency pair falls, bears will try to seize control of 1.3180. If they succeed, a range break would deal a serious blow to bulls and push GBP/USD down to 1.3140 with the prospect of reaching 1.3100.