Trump plans to nominate hawkish Warsh to take charge of the Federal Reserve, and the dollar's decline may ease

Asian Market Trends

On Thursday, although the Federal Reserve released a slightly hawkish signal to provide some support for the US dollar, investors still have doubts about the outlook for US policy. The US dollar index once rose to an intraday high of 96.66 during the US session, and then fell sharply and gave up all the gains during the day. As of now, the US dollar is quoted.

Trump: The candidate for the chairman of the Federal Reserve will be announced next week, and interest rates should drop by 2 to 3 percentage points; we deserve to enjoy the lowest interest rates in the world, and the Federal Reserve should cut interest rates significantly now; bipartisanship will be adopted to avoid a government shutdown.

Trump said Putin agreed to a one-week ceasefire in parts of Ukraine. Zelensky: The ceasefire reached on energy facilities will begin on the night of the 29th.

Iran issued an early warning to www.xmtraders.commercial ships and will conduct live-fire naval exercises in the Strait of Hormuz on Sunday and Monday. Speaker of the Iranian Parliament: It is difficult to trust US President Trump under the current situation; Deputy www.xmtraders.commander of the Iranian Revolutionary Guards: We are not afraid of any threats. With our deterrence and the will of the people, we have successfully prevented the enemy from carrying out any risky actions.

Saudi and Israeli officials visited the United States to discuss potential military action against Iraq. The European Union labels Iran's Revolutionary Guards a "terrorist organization."

CME Group raised margin levels for gold, copper and some aluminum futures.

World Gold Council: Global central banks purchased 230 tons of gold in the fourth quarter. Gold demand strong in 2026The momentum is expected to continue.

The U.S. Senate failed to advance the appropriation bill, and the federal government is once again facing a "shutdown" crisis. Another appropriation bill for the Department of Homeland Security may be introduced.

Summary of institutional views

Analyst David Scutt: If Kevin Warsh wins the election, the U.S. dollar against the yen is prone to a short-term squeeze in the short term

Trump will announce the nominee for chairman of the Federal Reserve tonight. Market news says that the U.S. government is preparing to confirm Kevin Warsh as chairman of the Federal Reserve. In the forecast market, his support rate is already at a far lower low, which has increased market expectations for the Fed's policy to turn hawkish. This change supports the trend of the US dollar and poses a challenge to the "dollar depreciation" narrative. Coupled with the weakening domestic data in Japan, the US dollar is facing the risk of short squeeze against the yen.

Former Fed Governor Kevin Warsh is widely seen as the most hawkish candidate still in the race, and his appointment may slightly ease market concerns about the Fed's independence relative to other candidates. There has been a clear positive USD reaction as traders move from speculation to pricing in confirmed risks. He served as a Fed governor from 2006 to 2011, which meant he experienced the global financial crisis firsthand. This background was crucial: He witnessed how the Fed operated during the crisis, the policy-making process under pressure, and the practical boundaries of the central bank’s power. He has long been skeptical of ultra-easy policies, a massive balance sheet and the notion that the Fed can solve all economic problems. This background explains why markets view him as a more hawkish pick, and why his name rising to the top of the list is seen as positive for the dollar.

Risk assets that had rallied in anticipation of Rick Reed's nomination may www.xmtraders.come under pressure as he is now viewed as a replacement rather than the favorite. If Warsh becomes the new Fed chairman, the narrative surrounding "dollar depreciation" and the Fed's structural easing will also appear unconvincing, which increases the risk of a www.xmtraders.comprehensive repricing of the market. Given that positions are already very concentrated across multiple markets, a shift in expectations could have a significant short-term impact, particularly if nominations are confirmed and recent trades are forced to unwind.

Among them, the US dollar against the yen may be one of the currency pairs facing repricing. Its recent sharp decline, www.xmtraders.combined with weak domestic data released earlier today, has set the stage for a short squeeze. Tokyo CPI data in January were overall lower than expected: overall inflation slowed to 1.5% year-on-year, core CPI fell to 2.0%, and core-core indicators fell to 2.4%. While base effects related to subsidies are still a factor, the generally weaker-than-expected data suggests weak underlying growth momentum rather than simple data distortions.

December retail sales data reinforced this signal, falling 0.9% year-on-year, while market expectations were for a slight increase, highlighting weak domestic demand. Overall, these data reduce the pressure on the Bank of Japan to continue raising interest rates in the near future, especially in the context of this week's sharp appreciation of the yen, which further curbs the risk of imported inflation. In an environment where U.S. interest rates are expected to be firmer, the U.S. and Japan’s short-termThe market is prone to upward short squeeze.

Goldman Sachs: Expectations have been disappointed, the pace is slower, and the pace of interest rate cuts is expected to be further delayed

We believe that the core signal sent by the Federal Reserve’s resolution in January is very clear: Thanks to the positive signals of economic growth and the “initial signs of stabilization” in the labor market, the www.xmtraders.committee has established a favorable policy observation position. This "good position" gives the Fed ample room to keep interest rates current as it continues to evaluate changes in data in the www.xmtraders.coming months. Although Powell emphasized that renewed weakness in the labor market would be a key signal to trigger a rate cut, we are consistent with the Fed's baseline expectation that the labor market will remain structurally stable this year rather than heading into recession.

Against this macro backdrop, we judge that the next interest rate cut will not happen in the short term. Powell described the current policy stance as "roughly neutral" or "somewhat restrictive," noting that the December dot plot showed a majority of members still expected further policy normalization. However, the specific pace of policy implementation will strictly depend on data performance. Powell reiterated his cautious optimism on inflation, believing that the inflation rate excluding the impact of tariffs is close to the target and that the impact of tariffs will eventually subside, thereby creating conditions for policy easing. However, it must be recognized that inflation data needs to continue to improve before a broad consensus can be formed within the Fed to support further easing. Even under our relatively optimistic inflation forecast, annual core PCE is likely to hover around 3% by mid-year rather than close to the 2% target.

Based on the re-evaluation of inflation stickiness and policy response threshold, we have adjusted the interest rate path forecast: it is initially expected that the Federal Reserve will make the next 25 basis point interest rate cut in June, followed by the last rate cut of this cycle in September. This will allow the federal funds rate to eventually fall back to the 3%-3.25% range, which is roughly at the center of the FOMC's estimated range of end-point interest rates and reflects the policy equilibrium point under current macro conditions.

Mizuho Bank: The impact of different election results in Japan’s House of Representatives on the JGB yield curve

We classify potential outcomes into four main scenarios based on the number of seats won by the LDP, and briefly describe the impact of each scenario on the yield curve. Of these scenarios, we currently believe scenarios (a) and (b) are most likely to occur, with (b) being slightly more likely.

(a) A large victory for the Liberal Democratic Party (such as a single-party majority) → bear market steepening

We believe that this scenario will exert direct bear market steepening pressure on the yield curve due to heightened market concerns about fiscal expansion. Even so, this result will not www.xmtraders.come as a big surprise, as the high approval rating of the city government has prompted the market to expect a significant increase in seats for the Liberal Democratic Party.

(b) The Liberal Democratic Party slightly increases its seats (the Liberal Democratic Party-Restoration Alliance maintains the majority) → no change or slight bull market flattening

There is no substantial difference from scenario (a), but the increase in the influence of the Gao City Government within the party will be smaller than scenario (a). With the current government remaining in power, fiscal expansion concerns are unlikely to diminish significantly.weak. However, we do not think this concern will intensify further. If markets have largely priced in scenario (a), then excessive concerns about fiscal expansion may ease somewhat, causing rates to trade sideways or fall slightly.

(c) The Liberal Democratic Party lost seats (the Liberal Democratic Party-Ishinkai alliance failed to gain a majority) but maintained its position as the largest party → the bull market flattened

The Liberal Democratic Party lost some seats, causing the Liberal Democratic Party-Ishinkai alliance to fall below the victory threshold set by Prime Minister Sanae Takaichi. The Liberal Democrats remain the largest party, allowing the coalition (or an enlarged version of it) to remain in power. However, since Prime Minister Takaichi has publicly tied her political future to the election results, the likelihood of her resignation will increase significantly. The removal of Gao's government could initially ease fiscal expansion concerns and trigger a bullish flattening of the yield curve.

(d) The Liberal Democratic Party’s seats were significantly reduced and a regime change occurred → interest rates increased significantly

The Liberal Democratic Party’s seats were significantly reduced, leading to the resignation of the Liberal Democratic Party-Resinkai Alliance. Assume that the largest opposition party, the Center for Reform Alliance, forms a new government. In this scenario, we believe two main factors will push interest rates higher: rising concerns about fiscal expansion and growing expectations for a rate hike by the Bank of Japan. As a result, we expect significant upward interest rate pressure across the yield curve.

UBS Europe and the United States Outlook: Political premiums may push up the exchange rate, but there are many resistances above 1.20

If political factors promote the further decline of the US dollar, the EURUSD may hit the reference point of 1.23 to 1.25, which is the market's concern. However, we advise against being overly bullish on EURUSD. First, many of the aforementioned risk factors may become increasingly clear. Second, just as European officials will resist excessive euro strength, policymakers are expected to push back against excessive dollar weakness. Third, U.S. economic data may prove solid enough to end the Fed's easing cycle in the first half of 2026. Taken together, these factors make it difficult for the EURUSD to break above 1.20 and continue to rise in the www.xmtraders.coming months.

With EUR/USD reaching our 1.20 target, we believe risks have leveled out and much of the USD depreciation has passed. While EURUSD may overshoot in the short term, we expect it to consolidate around 1.20 in the www.xmtraders.coming months.

While our baseline forecast is for the exchange rate to reach equilibrium around 1.20, significant upside and downside risks remain. Depending on the evolution of relevant factors, EURUSD could move in either direction away from 1.20. Further turmoil from the Fed would open the door for EUR/USD to move closer to 1.25; while a return to U.S. exceptionalism and European growth failing to accelerate in 2026 could lead to EUR/USD falling to 1.15 or lower.

UBS: Political premium hedges against macro positives, the logic and outlook behind the weakening of the US dollar

Since mid-January, the US dollar has been under pressure again. This was not caused by a single event;It is the result of a www.xmtraders.combination of negative factors. It started with U.S. demands for Greenland, threats of tariffs, and eventually some sort of "deal." Tensions over Greenland unnerved global investors, sending U.S. Treasury yields briefly rebounding. In addition, the risk of a U.S. government shutdown, potential changes in the selection of the Federal Reserve chairman, and the Supreme Court's ruling on the legality of tariffs have all exacerbated the weakness of the dollar.

Reports on possible intervention in the yen and the conclusion of "Plaza Accord 2.0" have further strengthened the existing downward trend. We believe that the recent confluence of these developments has prompted international investors to price in a dollar risk premium. The sharp rise in the price of gold and precious metals in general reflects investor anxiety over recent political and geopolitical developments.

Although the political situation has dragged down the dollar, macroeconomic fundamentals were originally favorable for a stronger dollar. The latest labor market report was stronger than previous data, and growth expectations were also significantly improved, leading to a repricing of expectations for a Fed funds rate cut, as confirmed by Chairman Powell's speech at today's Fed meeting. Meanwhile, global economic data has yet to improve significantly. To be clear, we do expect economic growth momentum to pick up in 2026 as fiscal spending accelerates. While a strong U.S. economy is generally positive for the U.S. dollar, a global economic recovery also tends to support procyclical currencies and is often accompanied by a weaker U.S. dollar. We believe that the latter factor has a greater influence, which is reflected in the strong performance of growth-friendly currencies in G10 countries and emerging markets.

The above content is all about "[XM Foreign Exchange Official Website]: Trump intends to nominate hawkish Warsh to take charge of the Federal Reserve, and the decline of the US dollar may ease". It is carefully www.xmtraders.compiled and edited by the editor of XM Foreign Exchange. I hope it will be helpful to your trading! Thanks for the support!

Live in the present and don’t waste your present life by missing the past or looking forward to the future.