
Fed Chair Warsh has appointed a string of luminary economists to examine policy issues regarding inflation-targeting, balance sheet, communications, data, and AI productivity. Mankiw, ex-Chair of the CEA, and Sargent, a Nobel Laureate, will review the inflation-targeting framework, ex-RBI Governor Rajan will examine the Fed’s balance sheet, ex-BOE Governor King will study communications, and Harvard’s Chetty will investigate data. Andreessen, a crypto VC and tech leader, rounds off to lead analysis on AI productivity. As most appointees are established economists from academia, they are not likely to propose fundamental changes to the Fed’s policy framework. Rather, they could suggest technical adaptations in response to more pressing US fiscal constraints, uncertainties in geopolitics, and a technological revolution driven by AI. With some of the best economic minds at work in these task forces, doubts over Fed policy credibility should subside, reducing headwinds to the USD.
The DXY trades little changed around 101, with volatility being small despite the exchange of strikes between US and Iran over the Strait of Hormuz. Oil prices have remained stable around USD75 even as shipping traffic has slowed. We see these strikes as a continuation of politics by other means, and importantly, US-Iran negotiations are still ongoing. Thus, it is unlikely for a restart of a wider war beyond current tit-for-tat strikes, and market concerns could remain capped, though oil sensitive currencies including JPY and IDR have slipped more this week.
KRW could benefit from the successful US ADR listing of a Korean memory maker, which has raised USD26.5bn. We favour USD/KRW shorts in our latest FX quarterly, expecting large domestic investment pledges by Korean memory makers to result in a significant repatriation of overseas earnings. BOK is also likely to hike rates next week, providing another support for the KRW.
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