[MARKET ANALYSIS] Dollar gains amid Warsh Fed chair nomination speculation

DXY: +0.5%

• Gained overnight following reports that the Trump administration is said to be preparing for the nomination of Kevin Warsh for the Fed Chair role, with US President Trump to announce his decision on Friday morning. Nonetheless, the gains are capped as the risk of a partial government shutdown looms after a House-backed funding package failed to pass the Senate procedural vote, while reports noted that a deal was reached to avert a shutdown in which the Senate would move quickly to pass five of the six spending bills that have cleared the House, although Trump has commented that he will know tonight what happens with the shutdown.

EUR/USD: -0.4%

• Gradually softened and tested the 1.1900 level to the downside amid a firmer buck owing to the potential Warsh Fed nomination, while participants look ahead to a deluge of data releases from the bloc, including flash GDP figures.

GBP/USD: -0.3%

• Failed to sustain the 1.3800 status, but with downside limited by a lack of major UK-specific catalysts, while there was little reaction seen from warnings by US President Trump that it is ‘very dangerous’ for the UK to get into business with China and even more dangerous for Canada to get into business with China.

USD/JPY: +0.5%

• Climbed higher with the upside facilitated by softer-than-expected Tokyo inflation data and after the dollar strengthened on speculation that Trump is to pick Warsh as the next Fed chair.

Antipodeans: AUD/USD -0.7% / NZD/USD -0.5%

• Retreated amid broad-based gains in the dollar and the mostly downbeat overnight risk appetite.

The speculation surrounding Kevin Warsh's potential nomination as Fed Chair has led to a notable strengthening of the US dollar, as traders anticipate a possibly hawkish shift in monetary policy. However, the dollar's gains are tempered by looming risks of a government shutdown, which could introduce volatility. This dynamic suggests that market sentiment is balancing between expectations of a more aggressive Fed and political uncertainties, impacting currency pairs like EUR/USD and GBP/USD accordingly.