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Dollar Rises With US Yields as Trump Set to Choose Warsh for Fed

(Bloomberg) -- The dollar rose with Treasury yields after US President Donald Trump was said to be preparing to nominate Kevin Warsh as the next Federal Reserve chair, seen as a relatively hawkish choice.

The greenback gained versus all its major peers, while US 10-year yields climbed three basis points. Trump had settled on Warsh, according to people familiar with the matter, but added that the selection wasn’t final until a formal announcement was made.

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“The market perception is that Kevin Warsh would be the relatively more traditional and less dovish option as Fed chair, in which case we might see fewer rate cuts,” said Andrew Ticehurst, a senior strategist at Nomura Australia Ltd. in Sydney.

The market moves are a sign the monthslong uncertainty over the next Fed chief is now getting closer to a resolution. Warsh, a former Fed governor and one of the four finalists on Trump’s shortlist to be the next central bank leader, visited the White House on Thursday, one of the people said.

Betting markets have increasingly favored Warsh, with Polymarket showing his chance of becoming the next Fed chair rising above 80% on Friday in Asia, as support faded for BlackRock Inc. executive Rick Rieder. Flows into interest-rate futures betting on a dovish policy shift had accelerated in recent days as Rieder’s odds moved to the top, with investors viewing him as more dovish than Warsh.

“Whatever he may say now, Warsh has a long hawkish history that markets have not forgotten, so the dollar and yields are higher,” said Sean Callow, a senior analyst at ITC Markets in Sydney.

Trump had teased his impending announcement without giving the name away Thursday evening, saying the pick won’t be too surprising and is someone who could have been in the position years ago. The president said he planned to announce his choice on Friday.

What Bloomberg’s Strategists Say...

It’s rare to see Treasury yield curve steepening during Asian sessions, which suggests this move is a defensive measure by investors to prepare for a more hawkish, rule-oriented regime under Kevin Warsh.

— Mark Cranfield, Markets Live strategist. Click here for the full analysis.

Warsh served on the US central bank’s Board of Governors from 2006 to 2011 and has advised Trump on economic policy. If nominated and confirmed, he would succeed Jerome Powell, whose term at the helm ends in May.

Indications of a more orthodox choice for Fed chair comes at a time when concerns over unpredictable US policy making, unsustainably large deficits and political interference in central bank policy are pressuring markets. Trump had indicated he favored a weaker greenback in comments earlier this week, before Treasury Secretary Scott Bessent said the administration supports a strong dollar policy.

The dollar has dropped this year amid the so-called debasement trade, which is a bet on a long-term decline in its purchasing power. Bloomberg’s gauge of the currency slid to its lowest level in almost four years this week.

The nomination of Warsh is seen as potentially countering some of those factors.

“Warsh is known for his hawkish tendencies in the past, emphasized fiscal discipline and a more cautious approach to rate cuts,” said Moh Siong Sim, a currency strategist at Oversea-Chinese Banking Corp. in Singapore. “A Warsh nomination could steady Fed‑independence fears, firming the US dollar and trimming dovish‑Fed risk.”

--With assistance from Edward Bolingbroke.