Dollar gains

The US dollar gained on Friday after former Federal Reserve Governor Kevin Warsh was selected to be the next ​Fed chair, and as the US currency recovered from a sharp selloff earlier in the week that analysts say was ‌overdone in the short-term.

President Donald Trump on Friday chose Warsh to head the US central bank when Jerome Powell’s leadership term ends in May. Warsh is seen as likely to support lower interest rates but would stop well short of the more aggressive easing associated with some of the other potential nominees.

Marc Chandler, chief market strategist at Bannockburn Global Forex, said that Friday’s move higher in the dollar is likely driven at least in part by positioning heading into the announcement.

“The dollar was ‌terribly oversold on the short-term momentum,” Chandler said. Meanwhile Warsh is “only one person…there’s no consensus to have lower rates ​anytime soon, even if we get a late cut or two at the end of the year, like the December dot plot suggested.”

Policymaker projections issued after the US central bank’s December meeting showed a median expectation for a single quarter-percentage-point cut this year.

The Fed on Wednesday held interest rates steady, as ‍was widely expected, amid what Chair Jerome Powell described as a solid economy and diminished risks to both inflation and employment, an outlook that could signal a lengthy wait before any further reductions in borrowing costs.

Fed funds futures traders are pricing in 52 basis points of rate cuts this year, with the first 25-basis-point reduction likely in June.

“The reaction in the markets to Donald Trump’s nomination of Kevin Warsh to be the next Fed Chair is broadly consistent with our view that the president ‍has made a relatively safe choice,” John Higgins, chief markets economist at Capital Economics said in a report.

“The perception seems to be that Warsh is not someone who is ‌firmly in ‌the president’s pocket and that he won’t contribute to a further undermining of the Fed’s independence and fears of currency debasement,” Higgins said.