The U.S. dollar maintained its gains on Monday as the collapse in precious metal prices shook financial markets, while investors focused on evaluating the approach the Federal Reserve, led by Kevin Warsh, might take.
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Currency movements remained largely isolated from the broader market decline triggered by sharp drops in gold and silver prices, which also spilled over into stock markets.
Traders turned their attention to the Japanese yen after Prime Minister Sanai Takaichi earlier this week highlighted the benefits of a weaker yen in an election speech, in contrast to the Finance Ministry’s efforts to halt the currency’s decline.
The selection of Kevin Warsh by U.S. President Donald Trump as the next Federal Reserve Chair triggered a wave of risk-asset selling and led to a drop in precious metals on Friday, while the dollar recovered losses it had suffered earlier in the week.
In Asian trading, the dollar held steady following Friday’s rise after Trump’s announcement. Analysts suggest that Warsh is less likely to push for aggressive, broad-based rate cuts compared to other candidates, though he is more inclined toward monetary easing than current Chair Jerome Powell.
The latest reading of the U.S. Dollar Index was 97.21, following a 1% jump on Friday.
The euro remained below the $1.20 mark, trading at $1.1848, while the British pound fell 0.16% to $1.3664.
Richard Clarida, Global Economic Advisor at PIMCO and former Vice Chair of the Fed, noted that although Warsh will inherit an FOMC still divided on the pace and scale of future monetary easing, he expects Warsh could implement two rate cuts this year, with a possible third. He added, “After these two or three rate cuts, we believe Warsh may become more cautious, depending on inflation expectations.”
Market expectations continue to indicate two potential Fed rate cuts this year, with no action likely until June, when Warsh would take office if confirmed by the Senate.
The Japanese yen fell slightly to 154.82 per dollar, influenced by the strong dollar and Takaichi’s earlier comments favoring a weaker currency.
The Australian dollar dropped 0.67% to $0.6916, ahead of the Reserve Bank of Australia’s interest rate decision on Tuesday, which is expected to be a rate hike.
The New Zealand dollar fell 0.37% to $0.5997.
Reuters
