Kevin Warsh is likely to become the next Fed chair. Given that it was widely expected that someone who would follow President Trump’s orders 100% would become Fed chair, the market may be thrown into turmoil if Warsh is indeed appointed. Specifically, the prospect of ultra-loose monetary policy receding may cause some turbulence in the asset markets.
However, long-term interest rates in the United States are likely to stabilize. This means that cryptocurrencies and commodities will face challenges, and with long-term interest rates stabilizing, the yen may strengthen slightly. The dollar-yen exchange rate plummeted due to coordinated action between Japan and the United States in the form of “rate checks,” but then U.S. Treasury Secretary Bessent himself stated that “there has been absolutely no intervention” and that “the United States always pursues a strong dollar policy,” undoing all the progress.
It is likely that Japan cooperated in the “rate check” to avoid the rise in interest rates caused by the weak yen spreading to long-term US interest rates. The strong dollar statement was probably intended to prevent the US bond market, which had judged from President Trump’s remarks that the US was aiming for a weak dollar, from starting to sell US Treasury bonds. In other words, what they want to protect is the rise in US interest rates. The US has a huge amount of debt, and a rise in interest rates would be fatal.
If that’s the case, a weaker dollar against European currencies and the Australian dollar seems unavoidable. The rise in gold prices symbolized anxiety about the financial system. Regarding USD/JPY, a slightly hawkish stance could keep it firm, but a sharp stock market decline is possible, so caution is warranted there. I want to short the dollar against currencies other than the yen.