Bessent plays two-handed hardball

This wasn’t a polite whisper in the marble halls of D.C. — Bessent came out swinging like a street preacher in front of the Fed’s front door, megaphone in hand, telling Powell to stop fiddling and take a hacksaw to rates. A full 50bp cut in September, not the dainty 25bp the market’s been quietly pricing, and slash the whole curve down 150–175bp while you’re at it. It’s a bold demand in a market still clinging to the idea that policy easing will be a slow dance, not a mosh pit. And while traders heard him loud and clear, the screens didn’t light up in panic — not yet. Without a Fed chorus at Jackson Hole (Aug 21–23) or an August payrolls report so catastrophic it makes the May miss look like a rounding error, the street’s treating his call like a tail risk, not a base case.

The greenback, already walking into the session with a limp, didn’t exactly collapse on cue. Sure, the USD two-year swap rate shed another 6bp to just under 3.40%, putting it a clean 10bp below pre-CPI levels, but there was no wholesale dollar rout. In fact, Bessent even gave it a faint lifeline by swatting down EJ Antoni’s idea of fewer jobs reports — a small nod to data transparency that markets, in their cynical way, took as a stabilizer. Today’s macro amuse-bouche is the July PPI print, seen at +0.2% for both headline and core, paired with continuing claims that last week spiked to 1.974 million. Together, they’re likely to cement the view that inflation’s “bump” is more of a smouldering ember than a dumpster fire, keeping the Fed’s hands from trembling — at least on paper.

Still, with tomorrow’s Trump-Putin summit looming like a geopolitical thunderhead, that could affect the oil price channels. Hence, there’s always the risk that some headline from that stage show — handshake, glare, or a throwaway line — ends up whipsawing currency markets. The underlying bias remains, however, firmly negative for the buck. This is still a “fade-the-rally” environment, not one to build a long position in the name of patriotism.

Energy angst – Goldman outlines Alaska meeting scenarios

Oil’s been sliding for eleven straight weeks, and Goldman’s commodity desk isn’t losing any sleep. They’re not betting on any surprise gush of Russian gas hitting the market. Even if Alaska produces a “peace deal” headline, they figure Western Europe’s pipelines stay as cold as a January morning in Murmansk. Nord Stream to Germany? Politically toxic after the latest EU sanctions. Yamal through Poland? Same story. Ukraine transit? Only if Brussels and Moscow ink some decades-long handshake, and from what European industrials are telling them, that’s a fantasy.
In a deal scenario, sanctions might loosen, but Russia’s output still sits in OPEC+ quota shackles and starved of fresh investment. Flip to the other hand — tensions flare, no ceasefire — and Washington may start rattling the “secondary sanctions” saber again. But with Russia’s barrels already moving in bulk, deeper discounts and sweeter freight keep India and China in the buyer’s seat. The punchline? Whether the summit serves caviar or cold shoulders, Goldman doesn’t see a game-changing supply shock on the horizon. This market’s still playing the same hand, just at a different table.

Across the pond, the euro’s striding into the summit with its shoulders back. EUR/USD has momentum, and you can see it in the options market, where one-week implied vol is as subdued as a cat in a sunbeam. Today’s eurozone data won’t rattle that confidence much — Q2 GDP likely holds at +0.1% QoQ, with industrial output expected to look soft after Germany’s -3.6% YoY shocker. Sterling had its brief sugar high on better-than-expected UK GDP (+0.3% QoQ, +1.2% YoY), but the move fizzled; with the BoE still obsessed with inflation and wages, it’s like bringing the teacher an apple when they’re marking you on calculus.

But the real theatre overnight was in Tokyo. Bessent, clearly in no mood for subtle diplomacy, called the BoJ “behind the curve” and flat-out told them to hike — the sort of remark that, in FX terms, is like handing yen bulls a loaded pistol. USD/JPY cracked lower toward 146.00, the yen suddenly strutting as if the BoJ had already pulled the trigger. A Reuters scoop piled on, hinting the BoJ might ditch their obsession with the elusive “underlying inflation” metric and instead talk about actual price levels and forecasts. For traders, that’s code for “we might actually hike again,” and yen longs wasted no time pressing the bid.

It’s not as if this came out of nowhere. Back in June, the US Treasury’s semi-annual currency report was already nudging the BoJ toward tightening, framing it as both an inflation fight and a structural fix for the yen’s weakness. But Bessent’s tone this week makes it feel less like gentle nudging and more like a quarterback barking plays from the line of scrimmage — “you hike, we cut.” It’s a rare, almost theatrical symmetry: the Treasury Secretary pressuring the Fed for aggressive easing while leaning on the BoJ to keep its foot on the brake.

So here we are: the dollar caught between two central banks being told to head in opposite directions. It’s like watching a tug-of-war where the rope is the USD itself — pulled toward dovish Fed expectations on one end and hawkish BoJ whispers on the other. Right now, the tension is breaking bearish for the greenback, but the rope’s still in midair. The next lurch could come from Jackson Hole or a jobs report that forces the Fed’s hand. Until then, this is a market trading on positioning, perception, and the knowledge that sometimes the loudest voice in the room can move prices — even if it hasn’t moved policy.