The US dollar recorded its best one-day performance since May, after Trump selected Kevin Warsh as a candidate for Fed chair. He is believed to be committed to defending the independence of the central bank, which will restore investor confidence in the US currency. He is an expert with extensive experience in the FOMC. The White House will not be able to exert as much pressure on him as it does on candidates who are close to Donald Trump and less qualified.
In fact, Warsh faces challenging tasks. He must reduce the balance sheet without scaring the markets. He must slow inflation to 2% without raising rates. Finally, he must keep a distance from the influence of the White House, which wants to weaken monetary policy.
Kevin Warsh’s appointment is intended to strengthen confidence in the US dollar and halt the Sell America trade that has bloomed recently. Washington needs money to finance its budget deficit. According to Eurizon SLJ Capital, once the markets calm down, there could be a sudden and unexpected fall in the USD index thanks to coordinated currency interventions modelled on the Plaza Accord of 1985. Last year, investors actively discussed this topic.
The strengthening of the US dollar led to large-scale sales of precious metals. If confidence in the greenback returns thanks to Warsh, debasement trading will become irrelevant. As a result, silver lost 31% and gold fell 11% in just one day, the worst performance of these assets since March and January 1980, respectively.
Traders taking profits on long positions and banks hedging against the risk of a decline in precious metals certainly contributed to the collapse. The January rally in Gold and Silver was largely speculative in nature. At the end of the month, the bubble burst.
Japanese Prime Minister Sanae Takaichi attempted to stabilise the situation in the USDJPY. According to her, a weak yen has both advantages and disadvantages. In particular, it creates a tailwind for exporters, which is extremely important in the context of high tariffs. The LDP leader wants to build a strong economic structure that is resistant to exchange rate fluctuations.
