Fed Succession Rumors Bring Fresh Breath to the Dollar
The US dollar strengthened on Friday (January 30th), paring this week's losses, after US President Donald Trump said he would soon announce a nominee for Federal Reserve Chair—with market reports pointing to Kevin Warsh as the leading candidate. The dollar index (DXY) rose 0.37% to 96.48, while the euro fell to $1.1932, sterling weakened to $1.3765, and the dollar rose 0.5% against the yen to 153.88.
Today's dollar strengthening was primarily driven by headline-based fundamental factors. The market believes the appointment of Warsh—a former Fed governor—could reduce the uncertainty surrounding the direction of monetary policy that has been hanging over the country for months. Some market participants consider Warsh a relatively "more credible" option and could signal how policy will proceed after Jerome Powell's term ends in May.
However, this rebound doesn't change the broader context: the dollar remains on track for its second consecutive weekly decline—Reuters notes the DXY has "trimmed" its losses and is still headed for a weekly decline of around 0.9%. The dollar also touched a four-year low earlier in the week.
In addition to the "Fed chairman candidate" factor, the dollar is also benefiting from developments in US domestic politics: the US House of Representatives reportedly reached an agreement to avert a government shutdown, helping stabilize a currency that had been under pressure from a combination of global tensions and domestic issues.
From a market behavioral perspective, today's strengthening is also interpreted as short-covering ahead of the weekend. Reuters quoted ANZ analysts as saying market players are tending to reduce large positions in the face of the continued strong news flow—especially after "short dollar" positions had generated profits in recent sessions.
Geopolitical pressures and tariff risks have also made the market more "defensive." Reuters reports that tensions with Iran remain simmering, the US is sending additional warships to the Middle East, and Trump has said he will speak with leaders in Tehran. At the same time, the White House reported that Trump had signed an executive order imposing tariffs on countries supplying oil to Cuba, and also reiterated the threat of new tariffs on Canada.
Meanwhile, cross-asset responses corroborated the same story: as the Warsh rumors intensified, markets entered risk-off mode—the dollar and US bond yields rose, while risk assets and some commodities weakened.
The next focus will be Trump's official announcement of his Fed Chair nominee. If Warsh is confirmed, some market participants expect policy direction to be more "hawkish at the margins"—not just regarding interest rates, but also regarding a preference for tightening liquidity (e.g., the Fed's balance sheet), which could potentially support the dollar.
Source: Newsmaker.id
