The first reaction is not always the right one. As the events of 2026 show, it is almost always incorrect. The dollar was falling due to the White House’s tariff threats to Europe, due to Donald Trump’s support for the idea of weakening it. Finally, due to rumors of coordinated currency interventions by the United States and Japan. All three cases eventually ended with a roller coaster ride and a drop in the EURUSD. However, the growth of the greenback in response to the Warsh factor may also be a mistake.
Markets perceive the ex-FOMC governor as the most hawkish of all the candidates. His youth and experience at the Fed allow investors to think that Kevin Warsh is capable of standing up to the White House and protecting the independence of the central bank. This lifts the confidence in the US dollar that has collapsed there, reverses the “sell America” process and leads to a fall in the EURUSD.
However, Kevin Warsh, this wolf in sheep’s clothing, has expressed two ideas that are actually negative for the US dollar. He believes that rates should be lowered, as high inflation will not necessarily take hold in a strong economy. The candidate for the post of Fed chairman sees the reason for this inflation in a huge balance sheet that needs to be reduced. These measures will lead to an increase in the yield curve, which has historically supported the EURUSD.
The futures market gives a 63% chance that the federal funds rate will be lowered twice in 2026. Moreover, the chances dropped after Donald Trump’s decision to nominate a new Fed chairman. However, in fact, there may be four or even five acts of monetary expansion. This is in line with Stephen Miran’s views. And not only because he, like Kevin Warren, was appointed president of the United States.
In the world of innovation, one should change one’s views on economics and monetary policy. Until recently, investors were wondering why there is a cooling of the labor market against the background of impressive GDP dynamics. Artificial intelligence technologies explain this. Now that OpenAI and Anthropic are moving beyond providing chatbots and creating systems to replace law and accounting companies, as well as software manufacturers, the split may further intensify.
And in such a K-shaped economy, inflation risks dying. Then why would the United States need such high rates? What seemed to be Donald Trump’s populism and irrationality is turning into a new objective reality. This means that the president’s intention to weaken the dollar should be treated with understanding. The key question should be when exactly to buy EURUSD?
