- US Dollar Index gains support as caution builds around the Fed’s policy outlook.
- Trump’s nomination of Kevin Warsh as Fed Chair is seen as hawkish, favoring rate cuts but less aggressively than alternatives.
- The Greenback gained as risk sentiment improved after the US Senate advanced a government funding package.
The US Dollar Index (DXY), which measures the value of the US Dollar (USD) against six major currencies, is holding ground after registering more than 1% gains in the previous session and trading near 97.20 during the Asian hours on Tuesday. Traders await the US ISM Manufacturing Purchasing Managers’ Index (PMI) data for January due later in the day.
The US Dollar gains support from growing caution around the Fed’s policy outlook following President Donald Trump’s nomination of Kevin Warsh as Fed Chair, which markets view as a more hawkish choice who would support lower interest rates, though less aggressively than other potential candidates.
Warsh is also expected to rein in the Fed’s balance sheet, potentially shrinking market liquidity. Traders still price in two Fed rate cuts this year under Warsh, even as the Federal Open Market Committee (FOMC) remains split on the pace and scope of easing. Investors now look to Friday’s monthly jobs report for fresh labor market clues.
The Greenback also gained traction as risk sentiment improved after the US Senate reached an agreement to advance a government funding package, thereby averting a shutdown, according to Politico.
US producer-side inflation firmed, moving further away from the Federal Reserve’s 2% target and reinforcing the central bank’s policy stance. US PPI inflation holds steady at 3.0% year-over-year (YoY) in December, unchanged from November and above expectations for a moderation to 2.7%. Core PPI, excluding food and energy, accelerated to 3.3% YoY from 3.0%, defying forecasts for a decline to 2.9% and highlighting persistent upstream price pressures.
