Kevin Warsh is perceived as a “hawk” by the market. Is the market being misled, or is it difficult to classify him as a hawk or a dove?

Vincent Juvyns. - “There was a concern that Trump would appoint a dove, but historically, Warsh has been hawkish in his remarks. At this stage, it is difficult to categorise him as one or the other, though he is certainly less of a dove than Stephen Miran, another member of the Federal Reserve Board of Governors. He is someone who believes in the necessity of monetary policy to control inflation and was previously against quantitative easing (QE) or balance sheet expansion. Ultimately, he appears to be a consensus choice acceptable to both hawks and doves—and reassuring for markets.

Does this nomination risk disrupting Trump’s economic plans? We have seen the dollar appreciate against the euro, yet Trump prefers a weak dollar. Is this the start of a firmer dollar rally?

“Our view at the start of the year was that the dollar—currently at 1.18-- would remain stuck in a trading range of 1.15-1.20, and that still holds. A year ago, when Trump came to power, the dollar was near parity and objectively expensive. At 1.15-1.20, I believe Trump’s objective has been reached; there is no desire to go further because the dollar must remain stable and attractive to foreign investors.

QE proved effective, if it becomes necessary again, they will use it again.

Vincent Juvyns, chief investment strategist , ING Belgium

If foreign investors lose confidence in the currency, they lose confidence in its collateral—US Treasuries and American assets. Further dollar weakness would risk undermining the attractiveness of US markets at a time when external financing remains essential.

Since Warsh is reported to be against QE, could this generate tension with Trump, given that a major buyer of Treasuries would be absent?

“The Fed was already “absent” in the sense that it has been pursuing a policy of reducing its balance sheet. The balance sheet has already significantly decreased from approximately $9trn to about $6.5trn today. A large part of the job on quantitative tightening (QT) or  balance sheet reduction has already been done. While he is from the Milton Friedman school and fears the inflationary consequences of lax monetary policy, Americans are generally pragmatic. QE proved effective; if it becomes necessary again, they will use it again.

In a theoretical scenario where the dollar continues to progress and the euro deteriorates, could this lead to an increased European trade surplus and cause Trump to raise tariffs on European goods?

“If there were proven currency manipulation, the US could raise customs duties. However, it is clear that Europeans are not driving this; it is a consequence of what is happening in the US.

Currently, the European Central Bank (ECB) is not pursuing a “re-inflation” policy, as they have stopped moving rates and are reducing the size of their balance sheet. While negative rates in the past could have been questioned as a form of currency debasement, that is no longer the case.

What other impacts do you see from the Warsh nomination on the Eurozone?

“I do not see any immediate impact. He is a consensus candidate, and markets were relieved to avoid a more disruptive nominee. Market pricing remains unchanged, with two rate cuts still expected this year. This provides assurance of a stable central bank across the Atlantic that does not export instability.

We saw some instability reflected in falling gold and silver prices, but those assets were an assurance against instability. Overall, the fact that he is difficult to pigeonhole is reassuring for market stability, and he will likely be endorsed by the Democrats.”