US dollar gains as odds drop on Hassett being made Fed chair

The dollar gained on Friday after U.S. President Donald Trump praised economic adviser Kevin Hassett at a ⁠White House event and said he may want to keep him in his current role, prompting speculation he is less likely to be named as chair of the Federal Reserve.

“I see Kevin’s in the audience, and I just want to thank you. You were fantastic on television today. I actually want to keep you where ‌you are, if you ‌want to know the truth,” Trump said.

“We have seen some US dollar buying on this headline, as it underscores that the Fed decision is mostly about political credibility,” Adam Button, chief currency analyst ‌at investingLive, said in a note.

“Of the candidates, Hassett is seen as the least independent, which in turn is the most-dovish due to Trump’s longstanding desire to cut rates,” Button said. Trump is expected to name his candidate to succeed Jerome Powell in the coming weeks, with Powell’s term due to end in May. The leading four candidates for the role are Hassett, Fed Governor Christopher Waller, former Fed Governor Kevin Warsh and BlackRock’s chief bond investment manager Rick Rieder.

Betting site Polymarket shows that Warsh is now a favorite to get the role. The dollar index, which measures the greenback against a basket of currencies including the yen and the euro, rose 0.06% to 99.41, ‌with the euro ‍down 0.1% at $1.1594. The index reached a six-week high of 99.49 on Thursday.

The U.S. currency has been boosted ‍this week by data showing an improving U.S. labor market, which has pushed back expectations of ‌further Federal Reserve rate cuts until June. Fed Vice Chair for Supervision Michelle Bowman said on Friday a fragile job market that could weaken quickly means the U.S. central bank should stand ready to cut interest rates again if needed. Data on Friday showed that U.S. factory production unexpectedly increased in December amid a surge in primary metals output that offset a decline at motor vehicle assembly plants, but activity contracted in the fourth quarter against the backdrop of challenges from import tariffs.

JAPAN WARNS ON YEN INTERVENTION The yen was also stronger on Friday after Japan’s Finance Minister Satsuki Katayama said Tokyo would not rule out any options to counter weakness in the currency, including coordinated intervention ‍with the U.S. The Japanese currency weakened to an 18-month low against the dollar on Wednesday on concerns that Japanese Prime Minister Sanae Takaichi will have more leeway to introduce fiscally expansionist policies. Takaichi plans to dissolve parliament next week and ‍call a snap parliamentary election, ⁠the secretary general of her party ⁠said on Wednesday, as she seeks public backing for her spending plans.

“That’s probably the key factor orchestrating the extension of the Takaichi trade and the new dollar/yen highs,” said Vassili Serebriakov, an FX and macro strategist at UBS. But “we have to weigh the upside in dollar/yen against risks of FX intervention.”

The Japanese yen strengthened 0.3% against the greenback to 158.16 per dollar.

Serebriakov sees an intervention as more likely in the 160-162 area.

Noah Buffam, director in FICC strategy at CIBC Capital Markets, also sees potential for the yen to continue to weaken, noting that Japanese officials are not yet showing full urgency in their warnings. Some Bank of Japan policymakers also see scope to raise interest rates sooner than markets expect with April a distinct possibility, as a sliding yen risks adding to already broadening inflationary pressure, four sources familiar with its thinking said.

In cryptocurrencies, bitcoin fell 0.77% to $94,812.