US Dollar Rises Amid Speculation on New Fed Chair
The US dollar rose on Thursday, driven by speculation that Federal Reserve Governor Christopher Waller may be the top candidate to succeed Jerome Powell as the central bank’s chair. According to a report by Bloomberg News, Waller has met with members of President Donald Trump’s team, who are impressed with him, although he has not yet met with the president.
Background on the Fed Chair Position
The current Fed Chair, Jerome Powell, has been criticized by President Trump for being too slow to cut interest rates. Powell’s term is set to end in May, and investors are concerned that his replacement may not act independently of the Trump administration. However, Waller is widely respected in financial markets and central banking circles, and his appointment could be seen as a positive development for the US dollar.
Market Reaction to Waller’s Potential Appointment
Karl Schamotta, chief market strategist at Corpay in Toronto, believes that Waller’s appointment would be beneficial for the US dollar. "He is understood to be someone with an easing bias, but he has the credibility that could keep long-term yields anchored and keep flows into the dollar well supported," Schamotta said. The dollar index, which measures the greenback against a basket of currencies, rose 0.18% to 98.36, while the dollar strengthened 0.1% against the Japanese yen to 147.49.
Other Market Developments
In other market news, sterling rose after the Bank of England voted to keep rates on hold, despite cutting rates by 25 basis points as expected. The British pound was last up 0.41% at $1.341, while the euro fell 0.27% to $1.1627. The euro had earlier reached a more than one-week high of $1.1698, driven by hopes of a breakthrough in talks to end the war in Ukraine.
Central Bank Policies and Currency Markets
The European Central Bank (ECB) is expected to maintain a more hawkish stance than the Federal Reserve, which could support the euro against the US dollar. Markets are pricing in a cumulative 14 basis point decline in ECB rates by the end of 2026, compared to expectations of 130 basis points in Fed rate cuts. The rate differential between the two central banks is likely to become a key driver of currency markets in the coming months.
US Labor Market and Inflation
The US labor market remains stable, despite weaker job creation and longer times for laid-off workers to find new jobs. The number of Americans filing new applications for unemployment benefits ticked higher last week, while the labor market is expected to remain stable. However, inflation expectations have deteriorated, with households boosting their views on the current and future state of their financial situations.
Conclusion
In conclusion, the US dollar rose on Thursday amid speculation that Federal Reserve Governor Christopher Waller may be the top candidate to succeed Jerome Powell as the central bank’s chair. Waller’s appointment is seen as a positive development for the US dollar, given his credibility and easing bias. The dollar’s rise was also driven by other market developments, including the Bank of England’s decision to keep rates on hold and hopes of a breakthrough in talks to end the war in Ukraine. As central bank policies and currency markets continue to evolve, investors will be closely watching the rate differential between the ECB and the Federal Reserve, as well as developments in the US labor market and inflation.
