Warsh whispers trigger dollar risk-off reversal
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President Trump to confirm Fed chair pick, with Kevin Warsh leading prediction markets after White House meeting. Dollar rises 0.4% as equity markets and commodities decline on balance sheet concerns.
GBP | Policy Certainty Keeps Sterling Anchored
Cable declined to 1.3760. The Bank of England (BoE) signals a steady stance ahead of next week’s policy meeting. Markets price a rate held at 3.75%.
Economists expect the next rate cut in April or June, with year-end rates projected to be around 3.0% to 3.25%, reflecting mixed UK economic signals. This outlook removes urgency from GBP positing and reduces speculative pressure across GBP pairs.
The pound faces pressure from multiple directions as traders balance domestic growth concerns against the BoE’s inflation-fighting credibility.
Sterling’s yield stability keeps downside pressure contained. Domestic credit and mortgage data for December carry relevance but fail to disrupt that balance.
The Pound is stuck in neutral until the BoE provides a catalyst. GBP/USD support holding above 1.3650 and resistance near the psychological 1.3800 mark. EUR/GBP remains range-focused near 0.8600.
Historically, this environment suits hedgers and longer-term planners. It discourages short-term directional trades. Sterling continues to act as a policy-anchored currency rather than a catalyst-driven one.
EUR | Central bank policy expectations caps Euro Extension
Euro momentum fades as European Central Bank (ECB) officials flag concerns over the pace of Euro appreciation, tempering bullish positioning.
EUR/USD trades near 1.1915, down 0.4% retreating from recent highs.
The Euro’s macroeconomic conditions offer limited counterweight. Euro area growth remains uneven and inflation trends remain contained. Markets remain cautious ahead of flash Q4 GDP and January CPI. Markets watch whether German data confirms stabilisation or points to deeper contraction that could force the ECB to reconsider its policy normalisation path.
The euro's recent appreciation complicates this picture by potentially dampening export competitiveness just as the region seeks growth momentum. For the EUR/USD pair support sits at 1.1900 and resistance near 1.2000 frames in the immediate range, with Friday's GDP prints likely to determine which boundary comes under pressure first.
USD | Trump to confirm Fed chair; reframes dollar behaviour
Fed chair speculation drives dollar strength as President Trump confirmed plans to name a new Fed chair on Friday (today). Markets digest Kevin Warsh's (a former Fed Governor) potential appointment as Chair and its implications on policy. Markets view Warsh as supportive of lower rates but advocating for a smaller Fed balance sheet. This combination creates uncertainty about liquidity conditions even as Trump continues pressuring the central bank via social media posts demanding lower rates.
The Dollar Index (DXY) rose to 0.4% trimming weekly losses to 0.9% after hitting four-year lows earlier in the week. US Treasury yields also rose and equities pulled back reflecting recalibration as the dollar stabilises.
Concerns over Fed independence remain visible. That factor limits sustained USD upside. The Fed kept rates unchanged this week and signalled confidence in economic resilience. Officials highlighted diminished inflation and employment risks.
US data reinforced moderation. Initial jobless claims fell to 231,181 unadjusted. Continuing claims declined to 1.827 million. Unit labour costs held at a 1.9% annualised pace in Q3. Atlanta Fed GDPNow trimmed Q4 growth to 4.2% from 5.4%.
Global Signals Drive Regional FX
President Trump signed an executive order declaring a national emergency over Cuba-related oil trade, adding geopolitical complexity to dollar direction. The administration threatened 50% tariffs on Canada-made aircraft until Gulfstream jets receive Canadian certification, while easing some Venezuelan sanctions.
These trade and tariff tensions span Iran, Venezuela, Greenland and Europe, creating cross-currents for the dollar as safe-haven demand competes with concerns about protectionist policies dampening global growth.
Friday’s US Producer Price Index release and Fed speaker commentary will help clarify whether recent dollar weakness represents a sustainable shift or a temporary correction before policy clarity emerges.
Markets look ahead:
- Germany: January CPI, HICP, flash Q4 GDP
- France: December consumer spending, PPI
- US PPI
Next week
- BoE rate decision
- Continued Fed speaker appearances
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