The dollar held onto its gains yesterday, while a collapse in precious metal prices roiled financial markets, as investors focused on assessing the approach the US Federal Reserve, led by Kevin Warsh, might take. Currency movements remained largely isolated from the broader market slump, which stemmed from a sharp drop in gold and silver prices and spread to stock markets. Traders refocused on the yen after Japanese Prime Minister Sanae Takaichi spoke at the start of the week about the benefits of a weak yen in a campaign tone that clashes with the efforts of the Finance Ministry to halt the decline of the Japanese currency. The selection of US President Donald Trump's Warsh as the incoming head of the Federal Reserve sparked a wave of selling in risk assets, leading to a fall in precious metals last Friday, while the dollar recovered its losses from the previous week. The dollar stabilized in Asian trading after rising last Friday following the announcement of the new Federal Reserve Chairman's appointment. Analysts believe Warsh is less inclined to push for rapid and widespread interest rate cuts compared to some other candidates for the position, yet he is more inclined to monetary easing than the current Chairman, Jerome Powell. The dollar index stood at 97.21 in the latest reading after a 1% jump on Friday, while the euro remained below the $1.20 level, settling at $1.1848, and the British pound fell 0.16% to $1.3664. PIMCO's global economic advisor and former vice chairman of the Federal Reserve Board, Richard Clarida, said that although Warsh will inherit the Federal Open Market Committee, which remains divided on the pace and size of future monetary easing, he believes Warsh will be able to make two interest rate cuts this year, and possibly a third one as well. Clarida added: "After these two or three rate cuts, we believe Warsh may be more cautious, depending on inflation expectations." Market pricing still points to two US Federal Reserve interest rate cuts this year, with a chance of no action until next June, when Warsh is set to take over as bank head if the Senate confirms his nomination. The Japanese currency weakened slightly to 154.82 yen per dollar yesterday, affected by factors including the dollar's strength and Takaichi's comments at the start of the week that seemed to accept a weaker currency. The Australian dollar fell 0.67% to $0.6916, and the Reserve Bank of Australia will set interest rates today, with expectations of a hike. The New Zealand dollar also fell 0.37% to $0.5997. • Analysts: Warsh is less inclined to push for rapid and widespread interest rate cuts compared to other candidates for the Federal Reserve chairmanship.
