It is reported that US President Donald Trump is preparing to nominate Kevin Warsh as the next chairperson of the Federal Reserve. Boosted by this news, both the US dollar and US Treasury bond yields have strengthened.
The yield on the 10-year U.S. Treasury note rose 3 basis points and that on the 30-year note climbed 5 basis points. The Bloomberg Dollar Spot Index rose 0.4%. According to people familiar with the matter, Trump has picked Mnuchin to be the chief financial officer, but the choice has not been finalized until an official announcement.
Andrew Ticehurst, a senior strategist at Nomura Securities Australia Ltd. in Sydney, said, “The market widely believes that Kevin Warsh as the chair of the Federal Reserve would be a relatively more traditional and less dovish choice. In this case, we might see smaller interest rate cuts.”
These predictions highlight the sensitivity of the interest rate market to signals from the Federal Reserve leadership. As the White House is about to make a decision, investors are now preparing for a potentially more hawkish stance from the central bank.
Trump said on Thursday that he plans to announce his nominee for the head of the US central bank on Friday morning.
The betting market is increasingly favoring Walsh. Polymarket data shows that his probability of becoming the next chair of the Federal Reserve rose above 80% on Friday, while support for Rick Riddell has declined. As Riddell’s odds have soared, funds betting on a dovish policy shift in interest rate futures have accelerated their inflow in recent days, with investors believing he is more dovish than Walsh.
The steepening of the US Treasury yield curve during the Asian trading session is a rare occurrence, suggesting that this move is a defensive measure taken by investors in response to a more hawkish and rule-based policy environment under Kevin Warsh, as Michael Bauer previously pointed out. Traders expect the Fed to cut rates twice more before December, but the price action in US Treasuries indicates that such expectations are overly optimistic.
“Whatever he says now, Walsh has long held hawkish views and the market has not forgotten that, so the dollar and yields are rising,” said Sean Callow, a senior analyst at a Sydney-based institution.
Technical analysis:
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Gold: The price experienced a significant pullback overnight, followed by a strong rebound, forming a wide range of 4000 basis points within 24 hours. Currently, the support level below this range is temporarily around 5100, and the resistance level above is around 5500. It is recommended to focus on buying at lower levels for operations. For detailed positions, please consult the plugin.
(Gold 15-minute chart)
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The Nasdaq index: As expected, the price of the index continued to sweep the liquidity below 25,500 overnight, and then rebounded. Currently, it has retraced to the 25,550/25,600 area and temporarily stabilized. If the price continues to rebound, a short-term long position can be considered. However, the risk of a second retest of the liquidity around 25,500 should also be kept in mind. For detailed positions, please consult the plugin.
(NASDAQ 15-minute chart)
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Crude oil: The short-term price will be strongly influenced by the changes in the Middle East situation. In terms of operation, we suggest continuing to focus on low-sweeping for liquidity and then catching the rebound signals, or temporarily observing and waiting until Monday to take action. For detailed positions, please consult the plugin.
(Crude Oil 15-Minute Chart)
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Today’s key financial data and events to focus on:
18:00 Unemployment Rate in Eurozone for December
21:30 US Producer Price Index for December (Year-on-Year)
