A trap for the President: the Fed shifts power

EUR/JPY

Key zone: 187.00 - 187.50

Buy: 188.00 (on strong positive fundamentals); target 190.00-191.50; StopLoss 187.30

Sell: 186.50 (after retesting 187.00) ; target 184.50-183.00; StopLoss 187.20

The U.S. market has entered a phase of political-monetary uncertainty: the discussion is not so much about replacing the Fed Chair, but about the likelihood of the appointment itself. U.S. Republicans are indirectly supporting a tighter Fed policy and are preparing a “gift” for Trump.

The market is pricing in a leadership change—but not rate cuts: Warsh’s candidacy strengthens the dollar, creates new risks, and shifts strategies

Reminder:

Kevin Warsh’s nomination was officially submitted to the Senate on March 4, 2026, and hearings in the Banking Committee took place on April 21. No final decision has been made—the process is just beginning, but markets have already reacted.

The initial reaction was clear:

• the dollar strengthened, and the UST yield curve steepened;
• equities—especially tech and financials—declined;
• S&P 500 fell 0.43%, Nasdaq Composite dropped 0.94%, the dollar index rose 0.39%;
• 10-year Treasury yields increased by 2 bps, while VIX rose 3.3%.

Warsh’s position appears contradictory, which is precisely what attracts market attention. On one hand, he consistently criticizes quantitative easing and the Fed’s bloated balance sheet. On the other, he allows for rate cuts if macro data improves, productivity rises, and disinflation continues—especially with political backing from Trump via the FOMC.

The key signal is his refusal to act as an “administration puppet.” In today’s political environment, this is critical.

The macro backdrop leaves little room for drastic decisions:

• the Fed rate remained at 3.50–3.75% in March;
• inflation (CPI) stands at 3.3% YoY and 0.9% MoM, PCE at 2.8% YoY;
• the labor market remains resilient (+178K jobs, unemployment at 4.3%).

So Warsh enters not during a crisis, but amid persistent inflation and limited policy flexibility.

In his statement, he emphasized the importance of Fed independence—especially relevant given the current balance sheet of about $6.406 trillion, including $4.407 trillion in Treasuries and $1.996 trillion in MBS.

What the market already understands:

• Warsh stated he received no promises from Trump regarding rate cuts—this cooled aggressive market rhetoric;
• together with Treasury Secretary Bessent, he supports gradual balance sheet reduction (~$6.7 trillion), which could enable rate cuts;
• he called Powell’s policy a “fatal mistake” regarding inflation and promised a regime shift—new tools and approaches;
• acknowledged improving inflation trends but questioned official data quality, referencing alternative measures (e.g., Dallas Fed methods);
• largely avoided discussing the labor market, suggesting a possible shift in the Fed’s dual mandate focus.

The market is gradually shifting focus: it’s no longer about “quick rate cuts,” but about restructuring the Fed’s framework and monetary policy regime.

Trading logic is also evolving. Strategies focusing on the dollar versus a broad currency basket, and relative trades within equities (e.g., Nasdaq vs. broader tech sector), appear more relevant.

The fate of the nomination depends directly on the investigation into Powell. As long as it continues, some Republicans are unwilling to support Warsh. Senator Thom Tillis is already blocking a vote until the process concludes.

Market expectations remain unstable: Kalshi estimates the probability of a Fed leadership change at 24% by May 15 and 65% by June 30. As long as Powell remains in office, markets lean toward a tighter policy scenario, supporting the dollar.

Warsh’s candidacy increases uncertainty, supports the dollar, and pressures risk assets. The absence of concrete rate-cut commitments has already impacted bond markets—yields are rising. Warsh still needs to prove his independence, which will be the key factor for investor confidence.

So we act wisely and avoid unnecessary risks.

Profits to y’all!