Dollar Rallies Most Since May as Trump Taps Warsh: Markets Wrap

(Bloomberg) — The biggest dollar rally since May 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.

As the greenback rose against all major currencies, it pared a January slide. Long-term Treasuries underperformed. Money markets didn’t react meaningfully to the announcement, with traders actually slightly increasing bets on two Fed cuts in 2026. A drop in commodity and tech shares dragged down the S&P 500, which still notched its best month since October.

If confirmed by the Senate, the former Fed governor will succeed Jerome Powell when his term ends in May. Warsh, 55, aligned himself with Trump in 2025 by arguing publicly for lower rates, going against his longstanding reputation as an inflation hawk. Speaking to reporters Friday, the US president said he had not asked Warsh to commit to cuts.

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

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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 0.4%. The yield on two-year Treasuries slid three basis points to 3.53%. Those on 30-year bonds rose four basis points to 4.89%. The dollar climbed 0.9%. Bitcoin posted its longest streak of monthly losses since 2019.

Gold saw its biggest slide in decades and silver plummeted in a reversal of a scorching rally to all-time highs.

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.

“It is unlikely he would have been selected without signaling a willingness to consider additional rate cuts this year,” she said.

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.”

‘The Bridge to Wall Street’

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.”

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.

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.

“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.

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.

“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.”

“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 and less communicative in its forward signaling.

“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 Federal Open Market Committee voted 10-2 Wednesday to hold the benchmark federal funds rate in a range of 3.5%-3.75%. Officials dropped language pointing to increased downside risks to employment that had appeared in the three previous statements.

“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, according to 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.”

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, 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.

Markets don’t need “a friendly Fed,” but a central bank that is predictable, transparent, and willing to take short-term heat to preserve long-term stability, according to Mark Malek at Siebert Financial.

“So yes, today feels messy. Yes, the plot has thickened. And yes, my perfectly teed-up earnings season just got hijacked by central banking politics. But if this leads us toward a world where fundamentals reclaim the spotlight and capital is priced a little more honestly, that is not a bad trade-off at all. In fact, it might be exactly what the market needs,” Malek concluded.

Corporate Highlights:

Apple Inc. rose after delivering 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. Jeff Bezos’ Blue Origin will pause tourist flights to space for “no less than two years” in order to shift resources to accelerating the development of its moon lander and other lunar technologies, the company announced. 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. 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 0.4% as of 4 p.m. New York time The Nasdaq 100 fell 1.3% The Dow Jones Industrial Average fell 0.3% The MSCI World Index fell 0.5% Bloomberg Magnificent 7 Total Return Index fell 0.3% The Russell 2000 Index fell 1.5% Currencies

The Bloomberg Dollar Spot Index rose 0.9% The euro fell 1% to $1.1853 The British pound fell 0.9% to $1.3684 The Japanese yen fell 1.1% to 154.76 per dollar Cryptocurrencies

Bitcoin fell 0.7% to $83,769.51 Ether fell 4.9% to $2,677.91 Bonds

The yield on 10-year Treasuries advanced two basis points to 4.25% 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 3.53% The yield on 30-year Treasuries advanced four basis points to 4.89% Commodities

West Texas Intermediate crude rose 0.6% to $65.80 a barrel Spot gold fell 9.7% to $4,851.40 an ounce ©2026 Bloomberg L.P.