Market focus this week has been on US monetary policy. The prospect of Trump announcing the next Federal Reserve chair, who is expected to be more dovish, earlier than usual to undermine the current chair Jerome Powell has raised odds of the central bank cutting rates.
Powell, whose term ends in May, was also interpreted as being more dovish this week in testimony to US Congress, adding to expectation of more rate cuts. Traders are now pricing in 64 basis points of easing this year versus 46 bps expected on Friday.
“The sooner a replacement is announced for Powell, the sooner he could be perceived to be a ‘lame duck’,” said Carol Kong, a currency strategist at Commonwealth Bank of Australia.
The Wall Street Journal reported on Wednesday that Trump has toyed with the idea of selecting and announcing Powell’s replacement by September or October, a move analysts say could lead to the person operating as a shadow Fed chair, undermining Powell’s influence.
Trump has not decided on a replacement for Powell and a decision is not imminent, a person familiar with the White House’s deliberations told Reuters on Thursday.
“Such an outcome could introduce some volatility into financial markets if the nominee makes public comments markedly different to the current chair,” CBA’s Kong said.
“For now, expectations President Trump will choose a more dovish chair will keep downward pressure on FOMC pricing and the USD.”
The euro was steady at US$1.1693 in early trading after hitting US$1.1745 in the previous session, its highest since September 2021. Sterling last fetched US$1.3733, just below the October 2021 top of US$1.37701 touched on Thursday.
The dollar index, which measures the US unit versus six other currencies, was lingering near its lowest since March 2022 at 97.378, on course for a 2% decline in June, its sixth straight month in the red.
The index has dropped more than 10% this year as Trump’s tariffs stoke US growth worries, leading investors to look for alternatives.
The yen was a bit weaker at 144.73 per dollar, while the Swiss franc was last at 0.8013 per dollar, perched near its strongest level in a decade.
Investor attention will also be on progress on trade deals ahead of the July 9 deadline for Trump’s “reciprocal” tariffs as nations scramble to get an agreement over the line with the clock ticking.
German Chancellor Friedrich Merz said on Thursday the EU should do a “quick and simple” trade deal with the US rather than a “slow and complicated” one.
A White House official said on Thursday the US has reached an agreement with China on how to expedite rare earths shipments to the US.