FX markets are trading cautiously this morning as investors prepare for Kevin Warsh’s first Jackson Hole address as Federal Reserve Chair. The dollar is holding close to a one-week high, while sterling and the euro have both eased against the greenback as traders avoid taking large positions before today’s keynote. Warsh’s comments on inflation, interest rates and the Fed’s policy direction could set the tone across currency markets heading into September. Beyond the US, the growing divergence between Bank of England and ECB expectations is keeping GBP/EUR contained, with neither side yet providing enough conviction for a sustained break from its recent range.

Currency markets begin the session with a more cautious tone as investors weigh sticky inflation, shifting rate expectations, geopolitical risk and renewed concerns around fiscal credibility. The dollar has steadied after recent volatility, while higher bond yields and firmer energy prices are creating a less supportive backdrop for the euro. Sterling remains relatively resilient, helped by attractive UK yields, although softer risk appetite is limiting upside. With Jackson Hole beginning today, markets are likely to remain highly sensitive to central bank messaging, particularly any indication that policymakers are becoming less comfortable with the inflation outlook.

FX markets remain relatively calm as lower US Treasury yields, easing oil prices and improving risk sentiment reduce demand for defensive positioning. Longer-dated US yields have fallen around 10 to 15 basis points over the past week, helped by expanded Treasury buybacks and an 8% pullback in oil prices as markets monitor signs of potential Middle East de-escalation. Lower rates volatility has also filtered through to currencies and equities, keeping carry trades attractive. The Australian dollar was one of the stronger performers overnight after hotter-than-expected inflation increased expectations that the Reserve Bank of Australia could tighten policy again in November. Attention now turns to US inflation data, Treasury supply and Friday's Jackson Hole speech from Fed Chair Kevin Warsh.

FX markets are starting the week with a clear divergence between currencies, bond yields and broader risk signals. The dollar remains under pressure despite a sharp recovery in US real yields, while the euro has held onto recent gains and sterling remains relatively contained. Investors are increasingly questioning whether higher Treasury yields still represent US economic strength, or whether they are instead compensation for rising fiscal risk, heavy debt issuance and policy uncertainty. With US trade tensions, Iran sanctions and Jackson Hole all in focus, the market remains reluctant to build large directional positions, but the underlying bias continues to favour selling dollar rallies rather than chasing them higher.

FX markets begin the week with the dollar still under pressure as investors focus increasingly on US policy credibility rather than traditional economic fundamentals. EUR/USD is trading near 1.168 after gaining almost 1% last week, while GBP/USD remains around 1.364 and close to the top of its 2026 range. GBP/EUR is little changed near 1.168, leaving sterling considerably stronger against the dollar than against the single currency.

The dollar’s failure to benefit from elevated Treasury yields remains the most striking market development. The US 10-year yield is close to 4.71% and the 30-year around 5.25%, having reached a 19-year high of 5.337% last week. The initial bond rally following the Treasury’s decision to increase long-dated buybacks has largely reversed, suggesting the underlying concerns surrounding inflation, government borrowing and debt supply remain unresolved. Brent crude has eased but remains elevated around $93 a barrel, while a weaker start for Asian equities underlines the cautious wider risk environment.

FX markets head into Friday with the dollar under sustained pressure, despite a renewed rise in US Treasury yields and relatively resilient economic data. DXY is down almost 0.9% over the week near 98.8, EUR/USD is trading around 1.1690 after reaching a 14-week high, and GBP/USD has pushed above 1.36 to its strongest level in six months. The common driver remains this week’s unexpected expansion of US Treasury bond buybacks, which has revived concerns over US fiscal policy and prompted investors to question whether the dollar will increasingly absorb the pressure created by attempts to contain long-term borrowing costs.

The bond market itself is proving less cooperative. Wednesday’s intervention briefly pushed long-term yields lower, but the US 10-year has subsequently returned towards 4.71% and the 30-year towards 5.25%. That combination — rising Treasury yields alongside a weaker dollar — is unusual and reinforces the impression that the currency is currently trading less on conventional interest-rate differentials and more on confidence in the wider US policy framework. Oil remains another source of uncertainty, with Brent briefly reaching $94.71 overnight as the stalemate between the US and Iran continued to restrict flows through the Strait of Hormuz.

FX markets begin Thursday digesting a sharp fall in the dollar after the US Treasury unexpectedly increased the scale of its long-term bond buyback programme. The Treasury will at least double the maximum size of purchases in the 10-to-30-year maturity sectors from $2 billion to $4 billion per operation, beginning on 9 September. The announcement immediately eased pressure on the bond market, pulling the 10-year Treasury yield down from around 4.71% to 4.65% and the 30-year yield back towards 5.20%.

The dollar absorbed much of the adjustment. The DXY index fell more than 0.8% to around 98.85, its lowest level since late May, while EUR/USD broke decisively above 1.16 and GBP/USD briefly reached 1.3630. Federal Reserve minutes released later in the session were relatively cautious on inflation, but struggled to reverse the move. Sterling has had more mixed fortunes: it has advanced against the dollar but slipped towards its lowest level against the euro since early July, highlighting how differently currencies are responding to the renewed focus on government debt and borrowing costs.

FX markets begin Wednesday with the dollar still under pressure, sterling showing little reaction to this morning’s UK inflation figures and global bond yields becoming an increasingly important risk for currencies. The dollar index is hovering around 99.65, close to recent multi-month lows, while EUR/USD trades near 1.1580 and GBP/USD remains around 1.3540. Softer US economic data have reduced expectations for another Federal Reserve rate increase, leaving tonight’s FOMC minutes as the main immediate test for the dollar.

The bigger cross-market story is the continued rise in long-term government borrowing costs. The US 30-year Treasury yield reached 5.337% on Tuesday, its highest closing level in 19 years, while the UK equivalent is approaching 5.8%. Brent crude has also climbed above $91 a barrel as uncertainty over the Strait of Hormuz persists. Higher energy prices, elevated government borrowing and concerns over longer-term inflation are combining to push yields higher even as expectations for near-term central-bank tightening have eased.