Dollar could regain footing. Kevin Warsh nomination kills some dollar debasement issues; suggests a more credible Fed, potentially fewer rate cuts. Expect choppy, big ranges for the dollar, not structurally weak from these levels.
Asks if dollar leading gold or gold leading dollar.
Guy
Jane Foley
Chicken and egg. If gold continues to sell off, a stronger dollar is possible, linked to debasement conversation.
Asks about market pricing for Fed cuts and Warsh's first meeting in June.
Tom
Jane Foley
Market thinking maybe a cut in June seems reasonable. Could be 2-3 cuts this year. Extra cut might impact Fed credibility a little, but not a Turkish central bank scenario.
Asks what Warsh does with the balance sheet and implications for the dollar.
Tom
Jane Foley
Most interesting question. He was against QE and wants to shrink the balance sheet. Pace and friction with Trump/Biden are unknowns. Lessons from BOJ: market uncomfortable when central bank buys less, yields rise.
Asks what this means for other central banks and crosses.
Guy
Jane Foley
Fed is in minority of G10 still cutting. Others (RBA, Swedish Riksbank) might hike next, causing FX turbulence. RBA this week could be first G10 to hike this cycle.
Asks about Swiss franc outlook.
Tom
Jane Foley
Swiss franc will be strong. It and Swedish krona have good fundamentals, low debt, and are diversification plays away from 'buy America' trade.
Asks if pound is overbought.
Guy
Jane Foley
Could be overbought. Market covered shorts after November budget. Politics could get juicy with potential Labour leadership challenge from left wing, unsettling sterling into spring/summer.