Forex analytics. The dollar warmed the wolf in sheep’s clothing – ForexNews.PRO
When Donald Trump made his choice of the new Fed chairman, the US dollar strengthened, and precious metals collapsed like a house of cards. Investors believed that Kevin Warsh would support the Fed’s independence and focus on fighting inflation. This is good news for greenback, but it somehow doesn’t fit in with the president’s dreams of a weaker currency and the lowest interest rates in the world. The White House has clearly set a trap. For whom?
The fall of the EURUSD looks logical. In the week to January 27, asset managers inflated bearish bets on the US dollar to their highest levels since April 2025. Hedge funds have reduced their net greenback positions at the fastest pace since July 2024. The news about Kevin Warsh turned everything upside down, forcing speculators to close previous deals.
There is an opinion in the market that the appointment of the former FOMC governor as chairman of the Fed reduces the risks of selling off American assets. He is less close to Donald Trump than Kevin Hassett, which allows him to defend the independence of the central bank and gain the trust of the rest of the Committee members. As well as the opinion of Congress, where individual Republicans intend to vote against any candidate, Donald Trump, while the trial of Jerome Powell is underway.
However, Kevin Warsh advocates lowering interest rates and reducing the Fed’s balance sheet. In theory, this will lead to a drop in the profitability of short-term treasuries and an increase in long-term rates. As a result, the yield curve will also grow, which has historically led to a decline in the US dollar.
In my opinion, the White House is playing a tough game. Donald Trump has given investors and congressmen a candidate who will not stimulate the “sell America” process and at the same time inspire confidence in lawmakers with the idea of supporting the Fed’s independence. However, by May, everything will fall into place. Kevin Warsh is a wolf in sheep’s clothing, and in the spring he will show his true colors.
Personally, it will be interesting for me to see how this person draws the FOMC officials to his side. To strengthen the position of the “doves” in the Committee, a slowdown in inflation or a cooling of the US labor market will be required. If this does not happen, what arguments will Kevin Warsh bring to lower rates?
The reaction of the US dollar is mixed. The candidate for the post of Fed chairman believes that low inflation is possible in a strong economy. Fast–growing GDP is a positive for the greenback, low interest rates are a negative.
