Warsh is "Good News for the Dollar"

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The dollar gains against peers on reports Kevin Warsh has snared the top job.

It is reported that U.S. President Donald Trump will announce Kevin Warsh as the next Chairman of the Federal Reserve later today.

Analysts say stocks fell and U.S. bond yields rose in response to the news. The dollar strengthened and recouped a small portion of its recent sizeable losses.

This tells us that markets think Warsh is the more 'hawkish' on the list of candidates Trump had selected.

"It’s good news for the dollar, which can price out some risks of a more dovish pick," says ING analyst Francesco Pesole.

'Hawkish' in this context means he is likely to be more credible and orthodox when deciding whether to lower interest rates further. The fear was that another candidate would push through rate cuts simply to align with Trump's wishes.

"The dollar has been waiting for a catalyst for a recovery, and the news that Kevin Warsh is likely to be announced as the new Federal Reserve Chair nominee today offers exactly that. Warsh has been amongst the most market-friendly candidates," says Pesole.

Warsh served on the Fed's Board of Governors from 2006 to 2011 and built a reputation as an inflation 'hawk'.

Warsh has nevertheless aligned himself with the president in recent months by arguing publicly for lower interest rates

For markets, this is a credible compromise: to win the job, he must support Trump's views, but at heart, he is a realist.

The Warsh news comes amidst a rout of the dollar and does not fundamentally alter the bearish setup facing the currency, but it does, for now, open the door to further consolidation.

"Trump’s unpredictable approach to policy, including his efforts to put pressure on the Fed for rate cuts, is undermining confidence in the greenback and amplifying the trend - and raising partly-justified worries over a global de-dollarisation trend," says Kallum Pickering, an economist at Peel Hunt.