The US dollar rises as the chances of Hassett being appointed Fed chairman diminish

The dollar gained on Friday after US 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, fueling speculation that he is less likely to be named chairman of the Federal Reserve. “I see Kevin sitting 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 buying of US dollars in this headline as it underlines that the Fed’s decision is very much about political credibility,” Adam Button, chief currency analyst at InvestLive, said in a note.“Among the candidates, Hassett is seen as the least independent, who in turn is the most forgiving due to Trump’s long-standing desire to cut interest rates,” Button said. Trump is expected to name his nominee to succeed Jerome Powell in the coming weeks, with Powell’s term set to expire in May. The four leading candidates for the role are Hassett, Fed Governor Christopher Waller, former Fed Governor Kevin Warsh and Rick Rieder, BlackRock’s chief bond investment manager.

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

The US currency was boosted this week by data showing an improving US labor market, pushing back expectations of further Federal Reserve interest rate cuts until June. Fed Vice Chair for Oversight Michelle Bowman said Friday that a fragile labor market that could quickly weaken means the U.S. central bank must be ready to cut rates again if necessary. Data on Friday showed U.S. factory output rose unexpectedly in December due to a rise in primary metals output that offset a decline at motor vehicle assembly plants, but activity contracted in the fourth quarter amid challenges from tariffs.

JAPAN WARNS AGAINST YEN INTERVENTION The yen was also stronger on Friday after Japanese Finance Minister Satsuki Katayama said Tokyo would not rule out any option to counter the currency’s weakness, including a coordinated intervention with the US. Japan’s 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 pursue fiscal expansionist policies. Takaichi plans to dissolve parliament next week and call early parliamentary elections, her party’s secretary general said on Wednesday, as she seeks public support for her spending plans.

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

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

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

Noah Buffam, director of FICC strategy at CIBC Capital Markets, also sees potential for further yen weakening, noting that Japanese officials are not yet showing full urgency in their warnings. Some Bank of Japan policymakers also see scope to raise rates sooner than markets expect, with April now a distinct possibility as a falling yen threatens to exacerbate already rising inflation pressures, four sources familiar with its thinking said.

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