Powell Confirmed as Next Fed Chair, US Dollar Softer on the News

Above: The next Chair of the US Federal Reserve, Jerome Powell, Source: Federal Reserve Gallery.

The US Dollar softened into the final day of the week on confirmation Jerome Powell will be next chair of the Federal Reserve.

U.S. President Donald Trump has nominated Jerome Powell to be the next Chairman of the Federal Reserve.

Powell, already a Federal Reseve board member since 2012 has been widely tipped as the top choice for more days now and the Dollar has turned lower as a result. The Pound-to-Dollar exchange rate is seen trading at 1.3071 at the time of writing having gone as low as 1.3042 in the past 24 hours.

Powell is seen as having more in common with the current Chair Janet Yellen than the other runners for the top job and is therefore seen as keeping policy more or less on a similar trajectory.

"Powell offers continuity and is least controversial candidate other than Yellen herself," says Marvin Loh, Senior Global Market Strategist at BNY Mellon. "Powell supports slow, steady rate hikes and Fed balance sheet tapering programme."

Markets had bid the Dollar higher as the prospect of Professor John Taylor becoming the next Fed chair pointed to a path of higher interest rates and therefore a higher trajectory for the Dollar.

“The reports have helped to dampen the risk that the Fed could speed up the pace of monetary tightening in the near-term. Understandably there is an initial sense of relief that President Trump has not picked a more hawkish Fed Chair such as Stanford University Professor John Taylor which should support high beta currencies at the expense of the US Dollar,” says Lee Hardman, Currency Analyst with MUFG in London.

We had reported the US Dollar could rise as much as five per cent were Taylor to succeed in becoming Trump’s nomination for Federal Reserve Chair when Janet Yellen’s term expires in February 2018, according to one strategist.

“Treasury yields and the Dollar are softer,” says Kit Juckes, analyst with Société Générale, “we might as well call the most recent peak the ‘Taylor spike’”.

BNY Mellon's Loh points out that as a member of the Board of Governors, Powell has voted at every monetary policy meeting since May 2014, which included decisions around Operation Twist, the final round of QE, tapering, all the recent hikes and, most recently, quantitative tightening.

He has always voted with the majority, never once objecting in the 44 votes that he has cast.

Unlike his four predecessors, Powell is not an economist by training, having served as a visiting scholar at the Bipartisan Policy Center prior to joining the Federal Reserve and best known for being a partner at the Carlyle Group as well as an undersecretary for finance under George H.W. Bush.

Investors are now likely to focus on who fills the other empty seats on the FOMC.

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