Dollar Is Set for Best Day Since July on Fed Pick: Markets Wrap

(Bloomberg) — The dollar’s surge toward its best day since July accelerated a plunge in precious metals as President Donald Trump announced his pick for the Federal Reserve’s top job: Kevin Warsh, who’s seen as less supportive of deep rate cuts and more worried about inflation. Stocks fell. Bonds were mixed.

An advance of the greenback against all major currencies trimmed its January slide. Long-term Treasuries underperformed. Money markets didn’t react meaningfully to the announcement, with traders slightly increasing bets on two Fed rate cuts in 2026. A slide in commodity shares and big tech dragged down the S&P 500, which was still set for its best month since October.

Warsh, who served on the US central bank’s Board of Governors from 2006 to 2011 and has previously advised Trump on economic policy, would succeed Jerome Powell when his term at the helm ends in May. It marks a comeback for Warsh, 55, whom the president passed over for the position in 2017 when he selected Powell.

If confirmed by the Senate, the former Fed governor will take charge of US monetary policy at a time when many economists and investors see its traditional insulation from elected officials as being under threat from the White House. Warsh aligned himself with the president in 2025 by arguing publicly for lower interest rates, going against his longstanding reputation as an inflation hawk.

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“Markets may price in a modest acceleration of rate cuts, but an aggressive easing cycle appears unlikely,” said Jason Pride at Glenmede.

The Warsh pick should help stabilize the dollar some and reduce, though not eliminate, the asymmetric risk of deep extended US currency weakness by challenging “debasement” trades — which is also why gold and silver are sharply lower, according to Krishna Guha at Evercore.

“But, we advise against overdoing the Warsh hawkish trade across asset markets – and even see some risk of a whipsaw,” Guha said. “We see Warsh as a pragmatist, not an ideological hawk in the tradition of the independent conservative central banker.”

The S&P 500 fell 0.5%. The Nasdaq 100 lost 1.1%. The Russell 2000 slipped 1.4%. The yield on two-year Treasuries fell three basis points to 3.52%. Those on 30-year bonds rose two basis points to 4.87%. The dollar climbed 0.8%.

Gold tumbled 9% while silver sank 28%. Bitcoin is poised for its worst streak of monthly losses in about seven years.

If Warsh is confirmed as Fed chair, Brian Levitt and Benjamin Jones at Invesco don’t think he would prove as hawkish as markets seem to expect and his past actions seem to suggest.

“Warsh’s policymaking background and prior experience at the Fed should lend support to central bank independence and financial system stability,” they said. “This may help inflation expectations and US borrowing costs, which remain contained. Also, his private-sector experience could result in further banking deregulation, providing a tailwind to credit expansion and US growth.”

With five years of history on the Board of Governors under the “Ben Bernanke Fed”, Warsh was known as the “bridge to Wall Street,” according to Jeffrey Roach at LPL Financial.

“Warsh is a safe pick. He’s forthright, willing to rethink convention, and not necessarily a ‘yes-man’,” Roach said. “Investors should be thankful.”

Trump’s nomination of Warsh to be the next Fed Chair is “a relatively safe choice for investors,” with his prior hawkish views counteracting concerns he might morph into a full-blown stooge, according to Stephen Brown at Capital Economics.

“Nonetheless, his desire for the Fed to operate with a smaller balance sheet still presents upside risks to long-term yields,” Brown said.

Moreover, his views downplaying the link between inflation and the pace of economic growth as well as his conviction that artificial intelligence and the Trump administration’s deregulatory push will hold down inflation means there is a risk of the Fed falling behind the curve in the future, he added

The selection of Warsh for the Fed should calm concern about the erosion of independence of the central bank, according to Eric Teal at Comerica Wealth Management.

“His candidacy included prior experience as a Fed Governor and as an investor,” Teal said. “He has been flexible on monetary policy in the past and will likely take the most-strategic approach toward the role of the Federal Reserve mission going forward.”

Further deregulation, reducing the balance sheet, and additional rate cuts if inflation continues to moderate should be stimulative for the economy and markets including more value-oriented sectors of the market in the intermediate term, Teal concluded.

“Kevin Warsh as the nominee for Fed Chair means we could actually end up with a Fed that tilts hawkish at the margin,” said Sonu Varghese at Carson Group. “Warsh has historically been a hawk, even though he’s been talking rate cuts lately.”

If he walks into the Fed with aggressive cuts as his baseline, he may not have a lot of credibility selling others on the need for further rate cuts, Varghese said. And we may even end up with a deeply divided committee that doesn’t cut at all, he concluded.

In a note titled “Warshing and Waiting,” TD Securities strategists say markets may struggle to pin down Warsh’s view given his notable shift in policy priorities after espousing a very hawkish stance over the last decade.

“Warsh will likely be a proponent of rate cuts in 2026, but the main question is whether his former hawkish persona makes a comeback down the road,” said the TD strategists.

While some market participants may be interpreting Trump’s pick for the Fed as a shift toward a more hawkish policy stance, that reaction may be “overly simplistic,” according to Seema Shah at Principal Asset Management.

“Although Warsh has been critical of the Fed’s reliance on its balance sheet as a stimulus tool, it is unlikely he would have been selected without signaling a willingness to consider additional rate cuts this year,” she said. “His credibility and institutional knowledge should ultimately anchor expectations rather than unsettle them.”

Shah also notes that his background suggests a strong respect for Fed independence, which makes him far less susceptible to political pressure for aggressive rate cuts when inflation dynamics do not warrant it.

“That commitment to independence should help limit the risk of a selloff at the long end of the Treasury curve and support financial stability,” said Shah. “In the longer run, Warsh’s nomination reinforces the likelihood of policy continuity and institutional credibility. For markets, that steadiness should matter far more than the knee jerk reaction we’re seeing today.”

“We perceive room for eventual agreement at the Fed on reducing the size of its balance sheet and moving it to a Treasury-only portfolio,” said Calvin Tse and James Egelhof at BNP Paribas. “However, these changes will probably take some time to implement.”

A twist-steepening of the Treasury curve based on Warsh’s past comments makes sense for now, they said, while a focus on AI-driven productivity and disinflation may further boost steepener trades.

Warsh brings an unusual combination of hawkish instincts, openness to innovation, and deep respect for Fed independence, according to Dan Siluk at Janus Henderson. His nomination suggests a policy regime that is more flexible on rates, more disciplined on the balance sheet, less communicative in its forward signaling, and influenced by a structural productivity narrative shaped by AI, he said.

“Markets should prepare for a Fed that is simultaneously more unpredictable and more orthodox, a blend that marks a genuine shift in the post‑crisis monetary landscape,” Siluk noted.

For markets, Siluk says the reaction reflects the duality of Warsh’s stance. Front‑end yields have drifted lower on expectations that rate cuts may come sooner than previously projected. Longer‑dated yields have risen, as investors anticipate less willingness to use the balance sheet to suppress term premiums, producing a “bear steepening dynamic.”

If Warsh is confirmed, Wells Fargo Investment Institute strategists bet he’ll likely advocate to push the federal funds rate to a “neutral” level, which most Fed members project is near 3%.

“This expectation is consistent with our outlook for two quarter-point rate cuts in the second half of 2026,” they said.

“The Warsh nomination should be good for markets in general, but there is one area worth watching,” said Scott Helfstein at Global X ETFs. “Warsh has expressed interest in shrinking the Fed balance sheet as a means to ensure the bank’s independence from policymakers. That could drive some volatility in the rates market that spills into equities and credit spreads.”

There is a sense that a Warsh Fed technically leans more hawkish with an unwillingness to utilize the balance sheet to cap long-term rates, noted Charlie Ripley at Allianz Investment Management.

“With inflation risks continuing to loom on the horizon, balancing political pressures to reduce policy rates will remain a challenge,” he said. “On balance, we see Warsh’s nomination ultimately leads to higher risk premiums on long-term rates and the dollar. Momentum towards a directionally steeper yield curve puts duration buyers on notice, with more potential to underperform.”

The market looks at Warsh’s background as someone who’s sat on the Fed board, particularly during the financial crisis, and played an important role there as something that stands in his favor, according to James McCann at Edward Jones.

“What the markets will be concerned about if policy is not set appropriately is future inflation trends, which could weigh on the dollar and longer-term bond markets,” he said. “Steady, proactive action is the way forward here — not trying to stimulate a significant boom, but trying to steer this ship as we go through this AI transition.”

While it’s common to see volatility during a Fed Chair transition, Warsh’s nomination is exactly what markets were hoping for as he’s a steady hand, well known in market circles and is expected to maintain the independence of the central bank — which is critical for markets, according to Richard Saperstein at Treasury Partners.

“Warsh’s nomination doesn’t change our outlook for the stock market, which we expect to perform positively this year thanks to a strong economy, stimulus from the tax changes, and an improving corporate earnings story,” he said.

Corporate Highlights:

Apple Inc. delivered record quarterly sales and a better-than-anticipated forecast for the current period, even as the company warned that rising component costs are threatening to squeeze margins. Amazon.com Inc. is in talks to invest as much as $50 billion in OpenAI and expand an agreement that involves selling computer power to the AI startup, according to a person with knowledge of the matter. Digital storage company Sandisk Corp.’s strong revenue and earnings outlook is extending a blistering rally in the top performing stock in the S&P 500 Index. Exxon Mobil Corp. and Chevron Corp. surpassed profit expectations as higher oil production helped offset the blow from lower crude prices. American Express Co. fell after the company’s Platinum card refresh boosted expenses more than expected and profit fell short of analysts’ estimates. Verizon Communications Inc. reported its biggest gain in mobile phone subscribers since 2019 and announced plans to buy back as much as $25 billion in shares, signaling turnaround efforts under new Chief Executive Officer Dan Schulman are starting to bear fruit. Charter Communications Inc. reported something the cable provider hasn’t seen in a while — a gain in pay-TV customers, its first increase in more than five years. Eli Lilly & Co. failed to win backing from the European Union’s medicines regulator for the use of its weight-loss drug Mounjaro to treat a certain kind of heart failure in adults with obesity. Rio Tinto Group and Glencore Plc are poised to seek more time to work on a deal to create the world’s biggest miner as they wrangle over the premium that Rio would need to pay, people familiar with the matter said. Costco Wholesale Corp. will use Instacart’s technology to power online grocery ordering in Spain and France, extending their partnership beyond North America for the first time as the delivery company looks overseas for growth. Deutsche Lufthansa AG will retrofit its largest aircraft with better business-class seats and put them into service starting in April — a quick turnaround that contrasts with the delays plaguing its new Boeing Co. 787 premium cabin. China Vanke Co. reported its losses widened by two-thirds to a record last year, citing a sharp decline in its property developments and additional provisions. Some of the main moves in markets:

Stocks

The S&P 500 fell 0.5% as of 2:31 p.m. New York time The Nasdaq 100 fell 1.1% The Dow Jones Industrial Average fell 0.5% The MSCI World Index fell 0.5% Bloomberg Magnificent 7 Total Return Index fell 0.2% The Russell 2000 Index fell 1.4% Currencies

The Bloomberg Dollar Spot Index rose 0.8% The euro fell 0.9% to $1.1869 The British pound fell 0.8% to $1.3701 The Japanese yen fell 1% to 154.58 per dollar Cryptocurrencies

Bitcoin fell 0.2% to $84,187.51 Ether fell 2.6% to $2,740.79 Bonds

The yield on 10-year Treasuries was little changed at 4.24% Germany’s 10-year yield was little changed at 2.84% Britain’s 10-year yield advanced one basis point to 4.52% The yield on 2-year Treasuries declined three basis points to 3.52% The yield on 30-year Treasuries advanced two basis points to 4.87% Commodities

West Texas Intermediate crude was little changed Spot gold fell 9.1% to $4,888.22 an ounce ©2026 Bloomberg L.P.