End of week: Michigan unmoored. DXY couldn’t break.

DXY 101.37 · EUR/USD 1.1383 · USD/JPY 161.74 · US10Y 4.37% · Brent $72.91 · XAU $4083

The week closed with one print that mattered more than its headline and a cross-asset board that refused to choose. The University of Michigan preliminary release at 10:00 ET showed consumer 5-year inflation expectations jumping from 3.5 to 3.9 percent, the highest reading in the Michigan time series since 1995. The 1-year expectation moved to 4.8 percent from 4.7 percent. Through the framework we set up Monday in the breakevens piece, this is the survey-based "unmooring" signal. DXY couldn't extend on the print; the index closed at 101.37, the third sub-100 close in a row. The dollar rate-differential story is intact, but the round number is still defended, and the Iran-driven oil story flipped on its head with Brent collapsing to $72.91. Warsh's first FOMC Tuesday-Wednesday is landing into a much more mixed cross-asset board than the post-NFP and post-CPI sequence suggested.

The week, in three lines

1. Mon-Tue. DXY consolidated around 100.0 after Friday's NFP shock. Monday's piece read the "no give-back" as a confirmed regime change. Tuesday's auctions printed cleanly with strong foreign demand, reinforcing the term-premium story.
2. Wed-Thu. CPI Wednesday printed 4.2 percent headline (highest since April 2023) but core under-shot at 2.9 percent. The dollar took the headline. Thursday tested 100 intraday and got rejected; the round number held the line and DXY closed at 99.93.
3. Fri. Michigan preliminary unmoored the consumer 5-year expectation by 40 basis points. Brent collapsed roughly $7 over the day on Iran de-escalation chatter, taking the supply-side inflation channel out of the picture for the FOMC. The 30-year auction at 1pm delivered a small concession but no meaningful tail. Gold firmed, the 10-year drifted lower. DXY held below 100.

What the Michigan print does to the SEP framing

The Committee has historically discounted single-month Michigan moves. The reason is what today's reference piece covers: the Michigan series is noisy, it over-weights gasoline prices, and the consumer-side response to inflation news is less stable than the professional-side measures. Through that lens, today's print is a 40 basis-point shock that may revert next month.

The Committee has also said, repeatedly, that the asymmetry in its response function favours over-reacting to unmooring signals rather than under-reacting. A 3.9 percent print on the Michigan 5-year, combined with the 4.2 percent CPI headline and a still-firm 5y5y breakeven around 2.4 percent, gives Warsh both the data and the political cover to lean hawkish on framing at Tuesday's first SEP. The median dot for 2026 will probably land at 4.00 percent rather than the 3.875 the curve was pricing earlier this week.

The Brent collapse

The other major Friday move that did not get headlines is Brent. The front-month dropped from $93.50 mid-week to $72.91 on the day, on reports of constructive US-Iran back-channel talks and a Saudi statement signalling output capacity. Three consequences:

• The energy contribution to next month's CPI compresses. If Brent stays below $90, the energy contribution to June CPI will be materially smaller than May's 23.5 percent year-on-year. Headline CPI mean-reverts faster than the Committee implicitly assumed.
• The Michigan 5-year may itself revert. Consumer inflation expectations track gasoline prices with a one-month lag. If gasoline gives back the May spike, next month's Michigan 5-year prints closer to 3.5 percent and the unmooring signal washes out.
• The DXY-Brent regime anomaly is fully resolved. Both have moved back to classical signs: dollar up, oil down. The regime-anomaly read that drove the May piece is now history.

The cross-asset board, end of week

• DXY closed at 101.37. Sub-100 for the third consecutive close. The technical level holds.
• 10-year yield at 4.37 percent. Down from yesterday's 4.53, back toward the post-NFP base. Term-premium compression resumed; the expected-rate path held.
• EUR/USD at 1.1383. Closed the week roughly where it started Monday. The crowded long took some of its washout in mid-week and then stabilised; today's CFTC release will be the first read on whether the structural unwind is complete.
• USD/JPY at 161.74. Above 160 still, but MoF's step-four language Thursday has put a soft cap on the upside. An operation within the next week is now a live tail risk.
• Brent at $72.91, off roughly $7 on the day on Iran de-escalation. The energy-driven inflation channel has materially weakened.
• Gold at $4083, back from yesterday's lows. The post-Michigan reading is "inflation risk still on the table"; gold prefers that framing.

What's priced into Warsh's first FOMC

Going into Tuesday-Wednesday, the OIS curve implies essentially zero probability of a cut, roughly 12 percent probability of a hike at the meeting, and a 75 percent probability of a hike by the December meeting. The consensus median dot for 2026 year-end is roughly 4.00 percent. The longer-run dot is the variable to watch; consensus is centred on 3.00 percent against a March SEP that had it at 2.875.

Three scenarios for the meeting and the cross-asset reaction we expect in each:

1. Hold, hawkish SEP, trimmed-mean framing. Median 2026 dot lands at 4.00. Warsh leans on trimmed-mean PCE in the press conference, citing today's Michigan print as the kind of signal the trimmed mean filters out. DXY breaks 100 and runs to 100.5; EUR/USD to 1.145; gold down through $4,100.
2. Hold, neutral SEP. Median dot at 3.875. Warsh acknowledges the unmooring risk but does not commit to a particular response function. DXY stays inside the 99-100.5 range. The market waits for the next data.
3. Hold, dovish framing on the energy story. Warsh emphasises the Brent collapse and frames Michigan as a one-off gasoline-driven spike. Median dot stays at 3.875. DXY back through 99; EUR/USD to 1.17; gold to $4,300.

The chain at end of week three

Twenty-five published pieces in twenty-two calendar days, chained together. The first week tested the data-not-dots thesis and saw it pricing through the cross-asset board. The second week refuted the thesis on a hot NFP. The third week added a CPI shock, a Michigan unmooring, and a round-number rejection at DXY 100. The fourth week's anchor is Warsh's first FOMC, the most-watched meeting of the cycle so far. The chain continues.