US dollar gains as Trump nominates next Fed chair
What's the story
The US dollar strengthened on Friday after former Federal Reserve Governor Kevin Warsh was nominated as the next chair of the Fed. President Donald Trump nominated Warsh to succeed Jerome Powell when his term ends in May. Analysts believe that the dollar's rise is partly due to positioning ahead of this announcement, with Marc Chandler, chief market strategist at Bannockburn Global Forex, noting that "the dollar was terribly oversold on the short-term momentum."
Rate expectations
Warsh expected to favor lower interest rates
Warsh is expected to favor lower interest rates, but not as aggressively as some other possible nominees. However, Chandler cautioned that "there's no consensus to have lower rates anytime soon," even if a late cut or two at the end of the year is possible. This comes after the US central bank decided to keep interest rates unchanged on Wednesday amid a strong economy and reduced risks to inflation and employment.
Market reaction
Trump's nomination of Warsh a relatively safe choice
The market's response to Trump's nomination of Warsh as the next Fed Chair is in line with Capital Economics chief markets economist John Higgins's view that "the president has made a relatively safe choice." Higgins further added that "Warsh is not someone who is firmly in the president's pocket and that he won't contribute to a further undermining of the Fed's independence and fears of currency debasement."
Geopolitical impact
Dollar index rises on producer prices data
The dollar index, which tracks the greenback against a basket of currencies including yen and euro, rose 0.79% to 96.93. This was further bolstered by data showing US producer prices rose more than expected in December as businesses appeared to pass on higher costs from import tariffs. However, geopolitical concerns remain high on the agenda with Trump saying he plans to speak with Iran even as the US sent another warship to the Middle East.