Minneapolis Federal Reserve President Neel Kashkari expressed concerns about uncertainty affecting the Fed and US businesses. He noted the stagflationary impact of tariffs and the potential risks if tariffs remain extended.

Kashkari mentioned the need to wait for clearer data by September and emphasised the influence of trade negotiations in the coming months. He also pointed out how immigration policy is leading businesses to reconsider investment plans.

Currency Movements

The US Dollar Index showed a mild rebound but remained 0.30% down on the day at 98.82. Over the past seven days, the US Dollar weakened against multiple major currencies, showing the largest decline against the New Zealand Dollar.

EUR/USD maintained gains above 1.1400, buoyed by continued US Dollar weakness. Meanwhile, GBP/USD held near a three-year high, bolstered by a weak Dollar despite cautious market sentiment. Gold prices retreated slightly from recent two-week highs.

Kashkari’s remarks underline how policy choices beyond just interest rates are beginning to weigh more heavily on longer-term expectations. When he refers to the stagflationary effect of tariffs, what he’s drawing attention to is the uncomfortable mix of slower economic growth along with higher prices—something that tends to complicate monetary policy. Tariffs, by making imported goods costlier, squeeze consumers and raise input costs for businesses, all while potentially damping future investment by adding uncertainty.

He’s also made it clear that we’ll need to wait until at least September before clearer economic data might present itself—suggesting that any policy decisions before then may be hasty. At the same time, the absence of visibility in trade talks suggests caution. Markets will be highly sensitive to even small nuances in negotiations, not least because tariffs touch both inflation and output, pulling monetary policy in opposing directions.

Focus on Immigration Policy

An interesting observation came from his focus on immigration policy, something not usually front and centre in monetary discussions. Reduced labour supply, particularly in sectors already facing shortages, forces employers to hike wages or limit operations. That puts pressure on inflation, undercutting growth if firms pull back. Kashkari’s comments suggest businesses are already hesitating over new factory builds or expansions. That’s a data point we shouldn’t overlook.

Shifting to how the markets are breathing all this in, the US dollar showed a slight bounce—but that didn’t reverse the slide it experienced over the last week. A 0.30% fall on the day, with broad-based weakness against multiple major currencies, shows how sentiment is being steered more by macro uncertainty than short-term figures. The NZD emerged as the largest gainer, which reflects both regional confidence and the market’s readiness to move funds away from the dollar when given a reason.

The EUR/USD staying firm above 1.1400 is itself telling. The pair’s resilience is less about Euro strength and more about a pervasive softness in the dollar. The same can be said for GBP/USD touching near three-year highs. While traders in sterling remain cautious—given political noise domestically and abroad—they’re nonetheless reacting swiftly to soft dollar flows.

Gold’s pullback from recent highs doesn’t yet signal a change in trend. Rather, it’s a natural cooling off after touching its two-week peaks. With commodities, the reaction is often lagged, and gold’s moves are clearly tracking shifts in Fed expectations more than anything else. If sentiment worsens or inflation data jumps again, metals could be quick to retrace upward.

From our standpoint, this is the kind of backdrop where pursuing shorter-dated exposure and revisiting hedging assumptions makes clear sense. Options traders should pay attention to implied volatilities: any lull in data won’t last for long. With September flagged as a possible decision point by Kashkari, pricing in premium for early-to-mid autumn starts to feel increasingly warranted. And in directional trades, underlying assumptions should now incorporate slower capital deployment by firms and higher realised price pressures, particularly if key policy risks are not resolved promptly.

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