Fed Chair Speculation Is Reshaping Currency Markets—Here's What You Need to Know

The dollar took a breather on Wednesday, sliding -0.08% as market focus shifted away from strength in equities and toward potential Fed leadership changes. Here’s the full picture:

The Dollar’s Mixed Signals

Early gains on solid labor data evaporated quickly. Weekly jobless claims fell to a 7-month low of 216K (vs. expected 225K), while capital goods orders beat expectations at +0.9% m/m. But the Chicago PMI tells a darker story—it crashed to 36.3, marking a 17-month contraction low and signaling economic cooling ahead.

The Real Story: Dovish Fed Chair Rumors

Bloomberg’s report that Kevin Hassett is leading the pack to replace Jerome Powell as Fed Chair sent shockwaves. Here’s why it matters: Hassett is viewed as pro-rate-cut and aligned with Trump’s desire for lower rates. This raises red flags about Fed independence, which is bearish for USD. Markets are now pricing in an 80% probability of a 25bp rate cut on Dec 9-10—a significant shift.

How Other Currencies Reacted

EUR/USD climbed +0.23% to 1-week highs after ECB’s Vujcic signaled rates are “in a good place.” Ukraine peace talks uncertainty kept gains in check.

USD/JPY edged up +0.24%, but Japanese economic data suggests the BOJ could hike as soon as December. Machine tool orders hit 3-year highs (+17.1% y/y), and the leading index rose to an 11-month peak.

Gold and Silver Surge on Uncertainty

Precious metals jumped to 1.5-week highs amid dovish Fed chatter and geopolitical risks. Gold ETF holdings remain elevated despite recent long liquidation. Silver got an extra boost from 10-year supply lows at Shanghai Futures Exchange. Central bank demand stays strong—China’s PBOC gold reserves hit 74.09M troy ounces in October, marking 12 consecutive months of accumulation.

The Bottom Line

We’re seeing a classic risk-off setup: dollar weakness + flight to gold on Fed uncertainty. The next 3 weeks (before the December FOMC meeting) will be volatile.