US Dollar (USD) is down across the board, global equity markets are up, and bond markets are steady. Yesterday, President Donald Trump confirmed he has reduced the shortlist for Fed chair to one candidate and plans to nominate his choice in 'early' 2026 while referring to White House National Economic Council Director Kevin Hassett as 'potential' Fed chair, BBH FX analysts report.

Market eyes economic data as Fed cuts expected

"Hasset has consistently pushed for a more aggressive pace of Fed rate cuts, recently stating that he shares President Trump’s view that rates can be 'a lot lower'. Importantly, the Fed chair is not an autocrat. Monetary policy is set by the FOMC (7 governors and 5 Reserve Bank presidents) which constrains the power of any one individual in setting policy. Each member has one vote, and all decisions are made by majority vote."

"That means US economic data will matter more for Fed rate expectations than the FOMC line-up. Right now, the data argues for additional Fed funds rate cuts. US labor demand is weak, consumer spending is showing early signs of cracking, and upside risks to inflation are fading. Bottom line: narrowing rate differentials between the US and major economies suggests the path of least resistance for USD is down."

"Upward pressure on funding rates while liquidity is no longer being drained (Fed ended the reduction of its aggregate securities holdings on December 1) is a red flag. It could be a sign of stress inside the money market plumbing which means liquidity is becoming scarce for structural or risk-related reasons rather than policy. If the recent rise in repo rates is sustained, the Fed will have to begin buying assets again, further weighing on USD."