USD: More dissent for the Fed – Commerzbank

Donald Trump nominated Stephan Miran as the new Fed governor on social media yesterday evening, weakening the US dollar, at least in the short term. Miran replaces Adriana Kugler, who resigned unexpectedly and prematurely last week. As Ms Kugler's term would have expired in January anyway, Stephan Miran will initially only fill this role until January, but a subsequent reappointment is of course possible. Stephan Miran is currently Chairman of the Council of Economic Advisors and thus part of the US government, Commerzbank's FX analyst Volkmar Baur notes.

Miran's nomination is a negative for the USD

"In this capacity, it is understandable that Miran has represented the US government's view in recent weeks and months that tariffs will not have an inflationary effect and that interest rates are too high. It remains to be seen to what extent he will continue to represent this opinion as Fed governor. At least in theory, this position would give him a little more leeway not to have to express a political opinion. However, it should also be borne in mind that he is, of course, only nominated for this position until January. A sudden change of heart would therefore be surprising and could well jeopardise his continued appointment."

"It can therefore be assumed that the Fed is gaining another supporter for a more dovish monetary policy in Miran. During the last Fed meeting, Christopher Waller and Michelle Bowman had already voted in favour of lowering the key interest rate. With Miran, another vote would now be added. Miran's nomination is roughly in line with what one might have expected. With a doctorate in economics, he certainly meets the nominal requirements for the job, but in recent months his unconventional views have contradicted the Fed and its assessment of the economic situation."

"His short term in office will also make it difficult to determine which of his statements are in line with the essentially apolitical role of Fed governor and which are still politically motivated from his previous role in the US government. This is likely to cause some unrest within the central bank and complicate communication. And this at a time when it will be difficult anyway to make a quick shift to further key interest rate cuts in a way that is gentle on the market. All in all, I therefore view Miran's nomination as slightly negative for the US dollar, although this is in line with our longer-term assessment of a higher EUR/USD exchange rate and is already reflected in our forecasts."