The dollar is falling with new pressure coming from Japan. The New York Fed’s yen rate check and intervention speeches from Japan’s Takaichi, Katayama, and FX chief have finally given some breathing room to USDJPY. But the sudden move has also caused the dollar index to fall sharply, below the long-term trendline. 

Now, the focus will turn to the Fed once again. In tomorrow’s FOMC meeting, members are expected to hold rates at 3.75% with few dissenters. After the DOJ’s attack on Powell, members are likely to react by unifying on the rate decision (as much as possible) on Wednesday. The votes of Waller and Bowman will be closely watched. It is not clear whether Powell will talk about the Fed’s independence or not at the press conference. 

Another topic for the Fed will be the new chair nominee. According to Polymarket data, BlackRock’s chief investment officer Rick Rieder has taken the lead in the race with a 49% likelihood, passing Kevin Warsh. How MAGA will react to a Wall Street chief taking the role of Fed chair will be interesting. 

At the same time, the market also faces another shutdown risk. ICE protests have led Democrats to demand that ICE have some restraints, such as requiring warrants and body cameras; otherwise, they will force a government shutdown. The chances are very high at the moment. 

Dollar Index 

The dollar index fell below the long-term trendline that started in 2011 for the second time. The first was in September. A flat move between 96.25 and the 99.60-100.80 zone seems to be ongoing, very close to the trendline. In our view, the dollar is likely to hold the 96.25 support and the trendline for now and break it to the downside after the first quarter. However, new developments about the Fed, shutdowns, and possible yen intervention could change the timeline sooner than expected.