I wonder what helps the US dollar more, Kevin Warsh, or the high risks of his candidacy for the post of Fed chairman being rejected by the Senate? Republicans have a slim majority in the Banking Committee of 13 against 11 seats. At the same time, one of them, Tom Tillis, promised to vote against the person chosen by Donald Trump while the court case against Jerome Powell is underway. If Congress defends the independence of the central bank, you can safely buy greenback.
The stars have formed for the “bears” on EURUSD. Investor confidence in the US dollar is returning, business activity in the service sector is exceeding forecasts, and FOMC officials are characterized by moderately hawkish rhetoric. Lisa Cook said she was more concerned about inflation than unemployment. Unless there are major labor market shocks, the Fed should focus on fulfilling its mandate to reduce PCE to 2%.
This speech, coupled with an increase in prices in the report of purchasing managers in the service sector by 0.2 percentage points above the 12-month average, indicate in favor of a long-term hold on the federal funds rate. This plays into the hands of the “bears” on EURUSD. In the end, even if Kevin Warsh’s candidacy is approved by the Senate, his ideas are nothing more than hypotheses. They need to be confirmed by statistics. But criticism of the Fed can prevent the new chairman from forming a consensus.
The fall in the EURUSD is facilitated by the worst two-day peak in American stock indexes since April. And it’s not so much about the status of the US dollar as a safe haven asset. It’s about capital flows. Non-residents continued to buy shares issued in the United States, insuring currency risks by selling greenback. The fall of the S&P 500 forced us to exit deals and close hedges. As a result, the USD index rose.
It is unlikely that the ECB will want to throw a lifeline to the euro. When the EURUSD shot up to 1.21 at the end of January, the European Central Bank was going to sink the regional currency. Its rally in 2025 was one of the reasons for the slowdown in January inflation in the eurozone to 1.7%. This is the lowest figure for more than a year.
If disinflationary processes in the currency bloc continue to gain momentum, Christine Lagarde and her colleagues will be forced to return to resuming the cycle of monetary expansion. This will be a bolt from the blue for EURUSD. Therefore, any “dovish” signs from the ECB following the February 5 meeting are a reason to sell the euro.
