Dollar Gains on Report Waller Favored for Fed Head

U.S. Dollar Strengthens as Waller Emerges as Fed Chair Contender

Impact of Fed Chair Candidacy on Currency Markets

By Karen Brettell

(Reuters) -The U.S. dollar rose on Thursday after Bloomberg News reported that Federal Reserve Governor Christopher Waller is emerging as a top candidate to serve as the central bank's chair among President Donald Trump's team.

Trump has criticised current Fed Chair Jerome Powell, whose term will end in May, as being too slow to cut interest rates and some investors are concerned that his replacement will not act independently of the Trump administration.

Market Reactions to Fed Chair Speculations

However, Waller is deeply respected in financial markets and central banking circles and his appointment would be positive for the U.S. dollar, said Karl Schamotta, chief market strategist at Corpay in Toronto.

"He is understood to be someone with an easing bias, but he has the credibility that could keep long-term yields anchored and keep flows into the dollar well supported," Schamotta said.

Trump said on Tuesday he had narrowed his search for a new Fed chair to four people including economic adviser Kevin Hassett, former Fed governor and Trump supporter Kevin Warsh, and two other people. Trump did not name those people, but one is thought to be Waller.

Trump also said on Wednesday he would likely in the next two to three days nominate a candidate, out of a shortlist of three, to fill a coming vacancy on the Fed's Board of Governors after Adriana Kugler last week unexpectedly announced she was leaving.

They would serve Kugler’s remaining months, leaving the choice of a permanent replacement for a later date.

The dollar index, which measures the greenback against a basket of currencies including the yen and the euro, was last up 0.25% on the day at 98.43. 

Sterling rose after more policymakers than expected at the Bank of England voted to keep rates on hold, even as the British central bank cut rates by 25 basis points as was widely expected.

Global Currency Movements and Economic Indicators

Four of the BoE’s nine policymakers - worried about high inflation - sought to keep borrowing costs on hold, suggesting the BoE's run of rate cuts might be nearing an end. 

The decision "was a little bit more hawkish than the market expected," said Sarah Ying, head of FX strategy, FICC Strategy at CIBC Capital Markets in Toronto. 

The British pound was last up 0.33% at $1.3401.

The euro fell 0.36% to $1.1617.

The euro was boosted earlier on Thursday, reaching a more than one-week high of $1.1698, as investors welcomed talks in search of a breakthrough to end the war in Ukraine.

Russian President Vladimir Putin and U.S. President Donald Trump will meet in the coming days, after Trump's envoy, Steve Witkoff, held talks with Putin.

The single currency is likely to continue to be supported against the U.S. dollar by a relatively more hawkish central bank. 

“The biggest shift in the foreign exchange markets is really the idea that there's a little bit more tariff certainty - tariff uncertainty has declined,” said Ying. 

"The central bank story is going to start to matter a lot more ... moving forward there's going to be enough of a rate differential that that's going to matter most to markets.”

Markets are pricing in a cumulative 13 basis point decline in ECB rates by the end of 2026, with hikes expected in late 2026 and 2027, compared to expectations of 139 basis points in Fed rate cuts in the same time frame.

U.S. Job Market Trends

Traders boosted bets that the Fed would cut rates in September after July’s jobs report on Friday showed fewer jobs gains than expected and sharp downward revisions to previous months.

Data on Thursday showed that the number of Americans filing new applications for unemployment benefits ticked higher last week, suggesting the labor market was largely stable even though job creation is weakening and it is taking laid-off workers longer to find new jobs.

Cryptocurrency Market Update

Against the Swiss franc, the dollar strengthened 0.22% to 0.808, after President Karin Keller-Sutter returned from Washington empty-handed after a trip aimed at averting a 39% tariff on the country’s exports to the U.S.

In cryptocurrencies, bitcoin gained 1.20% to $116,507.   

(Reporting by Karen Brettell; Additional reporting by Stefano Rebaudo; Editing by Alison Williams, Kirsten Donovan)