The Daily Forex Market Report

Good morning

With the charts for precious metal prices being in a vertical climb recently, it’s interesting that nobody has spoken about a possible bubble for gold or silver; in fact, expert analysts just kept lifting their price targets again and again.  Then came Friday… 

These are the mid rates at 6:40 today:

Market News

• Things were going so well for the Rand last week, or poorly for the Dollar to be precise, and we made it to R15.64 to the Dollar on Thursday morning, which is our best level since June 2022.  But news from the White House on Friday pulled the carpet from beneath us as we plunged to R16.19, a move that was painful but not as painful as what was happening in the precious metals market.  We open today even worse at R16.25. 
• After months of speculation, and of repeatedly changing bets on who the frontrunner might be, Donald Trump finally removed all doubt on Friday when he announced Kevin Warsh as the next FED Chair.  Concerns about the FED’s independence had built to a fever pitch in recent weeks, especially when Trump’s economic advisor Kevin Hasset was instilled as the bookies favourite to get the job, but in Marsh the market breathed a sigh of relief as not only has he previously served on the FED but he is generally seen as an independent pick who will lead the FED based on data and not politics. 
• Warsh getting the FED’s top job is good news as the US central bank is the most important central bank in the world, an institution that needs to be seen as independent from politics while guiding the world’s monetary policy.  Investors in precious metals however were bracing for a more pliable FED Chair, hence the stampede into gold and silver over recent months as a flight to safety against Dollar weakness, but with Warsh’s announcement not only did the Dollar surge higher but gold slumped by over 10% while silver cratered by 31% registering its worst daily drop since 1980 and was described by one strategist as “every man and his dog rushing for the exit.”
• The perception that Warsh will preserve the sanctity of the FED was a big boost for the Dollar but further support came from his well known views that the FED should not run a massive balance sheet via the purchase of government bonds, and therefore if the FED is to reduce its balance sheet over time that would reduce Dollar liquidity in the market and drive up the value of the greenback.  The Dollar Index pushed higher as a result, while condemning the Rand to levels well above R16.00. 
• The following is from Reuters:  “There ‍is a general sense of hawkishness in the market following the emergence of Kevin Warsh’s name. He is viewed as less dovish than many of the other candidates and is expected to favour fewer rate cuts, which explains why the Dollar strengthened initially. Given that several names floated previously were extremely dovish and closely aligned with the White House’s preference for aggressive rate cuts despite the data, Warsh’s candidacy represents a relatively hawkish shift for the FED’s leadership. It is not necessarily a relief, ⁠but it does mark a more disciplined and realistic development,” said Ipek Ozkardeskaya, Senior Analyst at Swissquote Bank, Zurich. 
• The market will digest the Kevin Warsh news over the next few days while also trying to work out whether current FED Chair Jerome Powell will leave the FED when Warsh takes over in May, or whether he will choose to see out the next 2 years of his FED tenancy to prevent Trump from replacing his seat with somebody more sympathetic to his lower interest rate views.  The market, however, doesn’t dwell on one headline for too long, and soon this Friday’s US jobs report will come onto the radar, but until then, we can expect sustained Dollar strength.
• Local market data today sees our January manufacturing PMI at 11:00, followed by new vehicle sales at 2 pm. 
• Possible USD mid rate trading ranges in the Rand today are R16.10 and R16.40.

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