The Dollar Suddenly Gains Pressure, Followed by Bond Yields
The US dollar strengthened and US Treasury bonds weakened after news emerged that Trump was ready to appoint Kevin Warsh as the next Fed chairman. The dollar index rose by about 0.3%, while long-term bond yields also rose—the 30-year yield jumped by about 5 basis points—as the market perceived Warsh as being more "hawkish" (tighter on inflation).
Warsh is known for his track record of emphasizing inflation risks, so the market immediately priced in the possibility that interest rates would not be easily cut aggressively. This led to a classic response: the dollar strengthened, yields rose, bond prices fell. Although Warsh recently spoke of the need for lower borrowing rates, the market still remembered his "hawkish DNA."
Speculation intensified after Trump said the candidate announcement would be made on Friday, and Reuters also reported that Warsh had met with Trump at the White House. However, sources emphasized that the decision was not final until it was officially announced.
In the prediction market, Warsh's chances briefly soared, and many traders believed the process of "guessing" the Fed chairman was nearing its end. All of this comes at a time when markets are sensitive about the Fed's independence, the direction of interest rate cuts, and other frequently volatile US policy issues.
Source: Newsmaker
