USD: Fed Chair nominee could be announced soon – ING

A few headlines emerged from President Trump’s CNBC interview yesterday. First, Treasury Secretary Scott Bessent is off the shortlist to replace Federal Reserve Chair Jay Powell. Trump pointed to four frontrunners - Kevin Warsh and Kevin Hassett by name, with Chris Waller and David Malpass possibly rounding out the group. Betting websites currently place Hassett slightly ahead of Warsh. Trump hinted that the new chairman might be announced soon to replace resigning member Adriana Kugler, rather than waiting until January. Trump’s open attacks on the Bureau of Labor Statistics over payroll revisions have not had much market impact, but it will be interesting to see whether the selected Fed chair candidate echoes that narrative. If so, it could ignite fears of a disconnect between Fed policy and official data, ING's FX analyst Francesco Pesole notes.

Bias for a weaker dollar this week

"Warsh stands out as the most USD-friendly candidate at this stage. He is generally considered more hawkish than the others, and in this May conversation with the Hoover Institute, he laid out a Friedman-style view of inflation as a strictly monetary phenomenon, and that restoring price stability is the Fed’s path back to credibility. We could see the dollar gain support on his nomination. Waller may be the second-best option from a dollar perspective, while Hassett and Malpass lean more dovish and may be perceived as more prone to giving way to Trump’s will. Their nomination would be a worse outcome for the dollar, in our view."

"Trump also discussed trade yesterday, with two highlights: he said semiconductor and pharma tariffs will be announced next week, and that he is “getting very close” to extending the China trade truce. Markets priced little risk of the truce not being extended, but the imminence (and some uncertainty on the size) of sectoral tariffs is having a net negative impact – albeit moderate - on the yuan."

"We have not seen huge FX moves since Friday’s post-payrolls large swings. The dollar had started to recover some ground yesterday but a soft ISM services reading sent it back to Monday’s levels. We don’t have major data to monitor today, but there are speeches from the FOMC’s Lisa Cook and Susan Collins. They are both voters and dovish leaning, so there is some risk they’ll put a September cut on the table after the weak jobs report. We retain a bias for a weaker dollar this week, as we expect the dovish repricing in Fed expectations to show more clearly in FX dynamics and because an earlier-than-expected FOMC nominee by Trump risks swinging the balance more to the dovish side for the remaining three Fed meetings this year."