Who will be the new Fed chairman and how will he affect the dollar and gold?Posted on Wednesday, October 25 2017 at 2:42 pm GMT+0000
There is no doubt that more hawkish chairman will give the dollar advantage against other currencies.
But we should not forget that the Fed chairman is not the only one who makes monetary policy decisions and interest-rate setting; such decisions are made by the federal committee and as agreed by the majority of its members.
Therefore, I expect that the nomination of Federal Reserve Chair will temporarily affect the market for a short period, after which the markets will continue moving accordingly with the economic situation and the expected economic data, especially inflation and growth rates. Inflation is currently slowing down, and if it continues so, it might lead to a slowdown in interest rate hikes.
When we talk about a hawkish policy and interest rate hikes we expect a stronger dollar and versus a weaker gold due to the inverse correlation between both.
The high level of optimism among investors will push investors out of safe havens and into risky assets.
If John Taylor had been chosen to lead the Fed, gold will be under pressure because since Taylor is seen as the more hawkish option. He believes interest rates should be at 3% in the current economic situation.
I do not expect that the dollar or gold to be affected by the nomination Jerome Powell or Janet Yellen, because these two support raising interest rates gradually, and that process is already discounted in the market.