Fed Chair Shuffle: How Trump's Nomination Could Sink the Dollar and Fuel Rate Cuts

The U.S. dollar faces a pivotal crossroads as President Trump's push to replace Federal Reserve Chair Jerome Powell accelerates. With candidates like Kevin Warsh, Scott Bessent, and Christopher Waller under consideration—each leaning toward dovish monetary policy—the market is pricing in an earlier-than-expected pivot to rate cuts. This policy shift, combined with threats to the Fed's independence, could catalyze a dramatic revaluation of the greenback. Here's why investors should position for USD weakness now.

Threat to Fed Independence: A Catalyst for Policy Volatility

The Fed's credibility hinges on its independence, but Trump's public attacks—labeling Powell a “Total and Complete Moron”—signal a dangerous erosion of that principle. The Supreme Court has ruled against presidential overreach, but the mere threat of premature removal creates uncertainty. Markets hate uncertainty.

If a Trump-aligned candidate like Warsh or Bessent is appointed, the Fed's policy trajectory could shift sharply toward easing. Their dovish stance aligns with Trump's demand to slash rates to 1-2%, which would reduce the dollar's yield advantage over other currencies. The DXY, already near critical support at 97.50, could plummet further as traders front-run this scenario.

Candidate Implications: Warsh, Bessent, and the Dovish Bias

• Kevin Warsh: A former Fed governor and frequent critic of Powell's inflation hawkishness, Warsh's appointment would signal an immediate pivot to rate cuts. His advocacy for “patient” easing in 2020 (during a crisis) suggests he'd prioritize growth over price stability now.
• Scott Bessent: As Treasury Secretary, Bessent has already pushed for lower borrowing costs. His nomination would institutionalize fiscal and monetary policy alignment, accelerating USD depreciation.
• Christopher Waller: A current Fed governor and vocal advocate for cutting rates to 2.25%, Waller's appointment would cement a dovish majority on the FOMC.

Investment Takeaway: A Warsh/Bessent-led Fed would likely cut rates by 100-150 bps by 2026, versus the current 50-75 bps expectation. This gap presents a short USD opportunity. Historically, when the Fed adopts a dovish stance—whether via cuts or guidance—the S&P 500 has averaged a 2.5% gain over 30 trading days following such announcements, as liquidity injections and growth optimism dominate.

Technical Outlook: DXY at 97.50—A Breaking Point

The U.S. Dollar Index (DXY) has been consolidating near 97.50 for months. A decisive break below this level would confirm a bearish trend, targeting 95.00 (2023 lows) or lower.

Key resistance is at 98.50 (psychological barrier and 200-day SMA). If the DXY fails here, it signals a loss of faith in USD as a safe haven, accelerating capital flight into euros, yen, or commodities.

Data Catalysts: Q1 GDP and Inflation Print the Playbook

Trump's trade tariffs and weak global growth are already denting U.S. exports. If Q1 GDP comes in below 1% (as some forecasts suggest), it will validate the Fed's dovish pivot. Pair this with a CPI print below 1.5% (the Fed's preferred measure), and the case for rate cuts becomes irrefutable.

Positioning for USD Weakness: Strategies to Deploy Now

1. Short USD Pairs: Target EUR/USD and USD/JPY. A DXY drop to 95 could push EUR/USD to 1.10 (vs. current ~1.08) and USD/JPY to 130 (vs. ~135).
2. Short USD-Denominated Assets: Sell UUP (DXY ETF) or long FXE (Euro ETF).
3. Dovish Fed Plays: Buy TLT (20+ Year Treasury ETF) or IEF (7-10 Year Treasuries) as yields fall.

Risk Management: Set stops above 98.50 on USD shorts. If the Fed resists pressure and hikes rates, pivot to long USD positions.

Conclusion: The Fed's Fate is the Dollar's Crossroads

Trump's nomination gamble isn't just political—it's a market-moving event. With dovish candidates in the frame and policy risks mounting, the USD's decline is increasingly inevitable. Investors who front-run this shift could capitalize on a multi-month downtrend. As the Fed's independence wanes, so too does the dollar's reign.

Final Call: Short USD pairs and Treasury bonds now. The Fed's next move isn't just about rates—it's about who's pulling the strings. And right now, the strings are in Trump's hands.