Jan 30 - President Donald Trump told reporters on Thursday that he intends to reveal his pick to replace Federal Reserve Chair Jerome Powell on Friday, intensifying market focus on who will head the central bank once Powell's term concludes in May.
Speculation has centered on Kevin Warsh, a former Federal Reserve governor, and later media reports said the White House was preparing for Trump to nominate Warsh as the next Fed chair, citing people familiar with the matter. One source familiar with the events said Warsh, who has been on the short list to lead the Fed, visited the White House for a meeting with Trump on Thursday.
Market observers and strategists responded to the mounting reports and the prospect of Warsh's nomination, weighing the implications for Fed independence and near-term market flows.
"I guess the appointment of Warsh, if it’s true, will be seen as someone who can, in a way, remain independent, and not someone seen as likely to be subservient to Trump’s wishes," said Khoon Goh, head of Asia research at ANZ in Singapore.
Goh added that how markets respond once the president formally announces his pick will be telling. He suggested some of the recent currency moves might simply reflect position-squaring rather than a sustained directional shift.
"But I think the other thing as well, the dollar’s had a big yo-yo move this week, so some of these FX moves, I think I don’t want to put too much focus on it, because it could just be position squaring. Ahead of the announcement, people might just be lightening up risk.
"And the other thing as well is, especially on a Friday, if you think about it from an investor or market participant point of view ... What happened in the first weekend of January? Venezuela. What happened in the second weekend? The Greenland thing. And who knows, now there’s potential around Iran, right?"
Goh noted that any cautious investor would avoid holding large positions into the weekend, suggesting some of the recent moves - including successful dollar shorts - could reflect traders closing positions.
Other market participants said a Warsh nomination would be interpreted as a stabilizing choice that preserves the central bank's institutional independence while not signalling dramatic change to Fed policy direction.
"The Warsh story, if true, could be quite significant in the sense that he is regarded as a well-respected economist, and importantly, too, he gave a speech back in April last year, and in the speech he not only was a staunch defender of the Fed independence, but he was also very critical of the Fed and other central banks not speaking to their mandates," said Rodrigo Catril, senior FX strategist at National Australia Bank in Sydney.
Catril said market reaction has been positive for the U.S. dollar because a Warsh appointment would support the view that Fed independence will be preserved. He added that while some reforms could be expected under a new chair, a Warsh nomination would not necessarily indicate a Fed that would act at the direct behest of the president.
Institutional FX sales desks also reported immediate dollar demand as the Warsh narrative gained traction.
"We’ve definitely seen some dollar buying straight away on the back of it," said Tim Kelleher, head of institutional FX sales at Commonwealth Bank in Auckland. "The fact that it’s most likely to be Warsh, I doubt we get much of a knee-jerk reaction as if we’d got Rick from BlackRock.
"He’s known to the markets and probably calm things down slightly. The inference we’re seeing is that he’s more of a steady pair of hands rather than a slash-and-burn, Stephen Miran sort of guy."
The coming announcement - when made - will clarify whether the White House will formally nominate Warsh, and markets are likely to react to the confirmation or the naming of an alternative candidate. Until an official nomination is issued, commentary and positioning are expected to continue shaping currency and broader market moves.