U.S. dollar firm, yen in focus

The yen was also back on traders’ radars, after Japanese Prime Minister Sanae Takaichi over the weekend talked up the benefits of a weaker yen ⁠in a campaign speech

The U.S. dollar clung to its gains on Monday as investors weighed what ‌a central bank under Kevin Warsh might look like, with his preference for a smaller balance sheet.

The yen was also back on traders’ radars, after Japanese Prime Minister Sanae Takaichi over the weekend talked up the benefits of a weaker yen ⁠in a campaign speech, in a tone at odds with her finance ministry that has worked to stem the currency’s declines.

U.S. President Donald Trump’s pick of Warsh as the country’s next central bank Chair sparked a wave of selling across risky assets and sent precious metals tumbling on Friday, while the dollar clawed back its losses from earlier last week.

While ​investors think Warsh will be inclined to cut rates, they expect him to rein in the central bank’s balance sheet, which is typically supportive for the dollar ‍as it reduces the money supply in the market.

The dollar remained on the front foot in early Asia trade on Monday, leaving the euro firmly away from the $1.20 level as it last stood at $1.1848.

Richard Clarida, PIMCO’s global economic advisor and former central bank Vice Chair, said that while Warsh will inherit ⁠a Federal Open Market ‌Committee that remains divided over the ⁠pace and scale of further policy easing, he believes Warsh will be able to deliver two rate cuts this year, and potentially even a third.

Beyond those next two or three rate cuts, we believe ‍Warsh may be more wary, depending on the inflation outlook, said Clarida. Warsh, based on his writings since leaving the central bank, may be much less likely to rely on extensive forward guidance ​about the future path of interest rates.

Elsewhere, the Australian dollar declined 0.54% to $0.69255, while the New Zealand dollar slipped 0.3% to $0.6001.

The yen ⁠was down 0.4% to 155.39 per dollar on Monday, pressured in part by the dollar’s strength and Takaichi’s weekend comments which seemed to condone a weaker currency.