The US Dollar faces a potential shake-up as the White House considers a new Fed chair, and the Pound Sterling seizes the opportunity to shine. But here's where it gets controversial...
On Wednesday, the Pound Sterling (GBP) soared, trading 0.5% higher against the US Dollar (USD), reaching near 1.3280. This surge comes amidst speculation that Kevin Hassett, the White House Economic Adviser, could replace Jerome Powell as the next Federal Reserve chairman. At the time of writing, the US Dollar Index (DXY) hit a fresh monthly low near 99.00, tracking the Greenback's value against major currencies.
President Trump, in a recent White House event, narrowed his choices for Fed Powell's replacement to just one, with a hint that it could be Hassett. "I guess a potential Fed chair is here too. Am I allowed to say that? Potential. He's a respected person, that I can tell you. Thank you, Kevin," Trump said, as reported by Reuters.
The prospect of Hassett's selection as Fed chair has sent ripples through the markets. Hassett's support for lower interest rates in various interviews suggests a potential shift in monetary policy, which could weaken the US Dollar. The table below illustrates the percentage change of the US Dollar against major currencies, with the British Pound emerging as the strongest.
| USD | EUR | GBP | JPY | CAD | AUD | NZD | CHF |
| --- | --- | --- | --- | --- | --- | --- | --- |
| -0.32% | -0.60% | -0.25% | -0.26% | -0.34% | -0.25% | -0.33% |
| 0.32% | -0.27% | 0.09% | 0.06% | -0.01% | 0.08% | -0.01% |
| 0.60% | 0.27% | 0.35% | 0.33% | 0.26% | 0.35% | 0.26% |
| 0.25% | -0.09% | -0.35% | -0.01% | -0.09% | -0.01% | -0.08% |
| 0.26% | -0.06% | -0.33% | 0.00% | -0.07% | 0.00% | -0.07% |
| 0.34% | 0.01% | -0.26% | 0.09% | 0.07% | 0.09% | -0.00% |
| 0.25% | -0.08% | -0.35% | 0.01% | -0.00% | -0.09% | -0.09% |
| 0.33% | 0.00% | -0.26% | 0.08% | 0.07% | 0.00% | 0.09% |
The heat map above visualizes the percentage changes of major currencies against each other. For instance, the USD/JPY change represents the US Dollar (base) against the Japanese Yen (quote).
The Pound Sterling's rally extends its budget relief recovery from last week, where UK Chancellor Rachel Reeves announced a tax hike of 26 billion pounds annually to address the fiscal gap and create a buffer for unforeseen events. Additionally, upwardly revised GDP growth projections for 2025, now at 1.5%, further boosted Sterling's appeal.
However, the Bank of England (BoE) sounded a note of caution in its half-yearly Financial Stability Report, warning of escalating financial risks due to stretched valuations in the artificial intelligence sector, risky lending, and bets with borrowed money in government bond markets. BoE Governor Andrew Bailey emphasized the importance of maintaining financial stability.
Despite these concerns, traders remain confident that the BoE will cut interest rates in its December 18 monetary policy announcement. Weakening job market conditions and softening inflation growth in the UK economy are key triggers for the BoE's dovish expectations. The latest employment report showed an ILO Unemployment Rate of 5% for the three months ending September, the highest in four years. The CPI report for October indicated moderate overall inflationary pressures.
In Wednesday's session, the GBP/USD pair will be influenced by the US ADP Employment Change and the ISM Services PMI data for November. Economists predict private employers to add 5K new workers, significantly lower than October's 42K. The ISM Services PMI is expected to drop to 52.1 from 52.4 in October. The US ADP Employment Change data will significantly impact market expectations for the Federal Reserve's monetary policy outlook, especially with the delayed Nonfarm Payrolls data due to the government shutdown, which will be released on December 16.
Several Federal Open Market Committee (FOMC) members have expressed concerns over job demand and favored further monetary policy expansion to support employment. The Fed's monetary policy decisions are shaped by its two mandates: achieving price stability and fostering full employment. It primarily adjusts interest rates to meet these goals, impacting the US Dollar's strength.
In extreme situations, the Fed may resort to Quantitative Easing (QE) to increase credit flow in a stuck financial system. QE involves printing more Dollars to buy high-grade bonds from financial institutions, and it usually weakens the US Dollar. The reverse process, Quantitative Tightening (QT), involves the Fed stopping bond purchases and not reinvesting the principal from maturing bonds, which is positive for the US Dollar's value.
The GBP/USD pair's technical analysis indicates a bullish trend, with the pair holding above the 20-day Exponential Moving Average (EMA) at 1.3192. The 14-day Relative Strength Index (RSI) at 54.80 confirms improving momentum. A fresh Higher Low-Higher High formation on the daily chart signifies a trend reversal, keeping Pound Sterling bulls optimistic. The psychological level of 1.3000 remains a key support zone, with the Cable potentially extending its upside towards the October 28 high of 1.3370.
And this is the part most people miss... The impact of a potential change in Fed leadership on the US Dollar and global markets could be significant. Will the US Dollar continue its downward trend, or will it regain strength? The upcoming economic data and policy decisions will provide crucial insights. What do you think? Share your thoughts in the comments below!
