FOMC preview: Fed on ice, Asia FX on fire, G-10 Dollar drifts as east leads the dance

The White House may be pounding the table for rate cuts, but the Fed’s sitting tight—Jay Powell’s in full “watch-and-wait” mode while near-term inflation headlines refuse to fade. Bond desks have slashed May/June cut bets and, with hard data holding up, don’t pencil in easing until Q3 at the earliest. That said, the same growth headwinds building the case for a genuine pivot—soft consumer spending, the import binge catch-up ahead of tariffs and corporate capex headwinds—are still simmering under the surface.

On the curve, Fed “tapered taper” roll-offs of $5 billion a month keep the central bank a net buyer of Treasuries, capping long-end yields even as the two-year trades higher. MBS swaps are whispered on trader decks but feel more like a future story—this dynamic gives front-end yields a subtle bullish bias. As for the dollar, it’s Fed-immune this week; its movers are trade-deal headlines and U.S. hard prints, not another round of dovish jawboning.

Short USD/JPY looks blisteringly frothy—leveraged funds are max-short and primed for a squeeze—but with markets pricing a stronger yen as a trade-deal sweetener, yesterday’s USDJPY longs need a hard second look. EUR/USD remains trapped in a 1.12–1.14 box, pinned by euro-area growth stagnation and lingering tariff angst. A flash of U.S. risk aversion, though the S&P500 would send the greenback reeling, but for now, the tape is all about the trade-deal arc—and that story leans mildly G-10 dollar-bullish on the fringes.

That brings us to Asia FX, where the real fireworks are unfolding. Currencies of nations front-running Washington’s trade overtures have broken out—headline act: the Taiwan dollar’s relentless ascent. Taipei’s central bank has quietly leaned in with verbal jawboning and light intervention to temper the melt-up. Market whispers suggest regulators may wink at stronger local units as diplomatic sweeteners—even as official denials flood the wires. Until negotiators put pen to paper, smoke in the NDF flows leaves more questions than answers. But one thing’s clear: Asia’s currency re-pricing is the next headline tether, and it won’t wait for G-10 markets to catch up.