The US Dollar (USD) gained amid holiday positioning and a Trump-imposed Venezuelan oil blockade, though slowing labor market trends suggest the Fed could ease more aggressively in 2026. Dollar gains may stall near the upper 98s without fresh catalysts, as speculation over the next Fed chair adds uncertainty to markets, Scotiabank's Chief FX Strategists Shaun Osborne and Eric Theoret report.

Trump’s Fed Chair choice adds volatility to USD and yields

"The USD is trading higher overall on the session as markets adjust positioning and start thinking about the holidays now the week’s main event is over. At the margin, some haven demand may be driving USD gains in response to President Trump imposing an oil blockade on Venezuela. Oil and gold price are stronger. Global stocks are moderately firmer while Treasurys are soft."

"A slowing labour market suggests the Fed may loosen monetary policy a little sooner and perhaps a little more aggressively than markets have priced in for 2026. While the USD is firming today, we remain bearish on the broader outlook. DXY gains may peter out in the upper 98/low 99 zone without additional impetus. Meanwhile, Citadel’s Griffin commented yesterday that it was 'important to keep distance between the Fed and the White House'."

"Reports have emerged recently suggesting 'pushback' from high level people close to the president regarding Hassett’s potential nomination as Fed chair. The reports have triggered a slide in online betting on Hassett and a jump in bets favouring Warsh’s nomination. Warsh is considered a strong candidate, given his term as a Fed governor (2006-11) and financial market experience. However, he comes with a reputation of something of a policy hawk and that is apparently not the sort of thinking President Trump wants at the top of the Fed. If it really is boiling down to these two candidates, US yields and the USD may rise somewhat if Warsh is picked. A Hassett nomination may be something of a liability for the USD and Treasurys."