Markets digest Kevin Warsh’s nomination as Fed chair. US dollar advances. Treasury curve steeper and S&P closes lower. Extreme volatility in precious metals continues

The focus for markets late last week was President Trump’s decision to nominate Kevin Warsh as the next Chair of the Federal Reserve. Warsh, a former Fed Governor, will succeed Jay Powell when Powell’s term ends in May, subject to Senate approval. Warsh is seen as less supportive of deep rate cuts and more concerned about inflation than other candidates. The US dollar advanced, equities closed lower, and longer‑term Treasury yields were mixed. Volatility in precious metals continued, with gold prices falling below US$4,800/oz—a decline of nearly 15% relative to the previous session’s high.

US money markets made no material adjustments in response to Warsh’s nomination. A 25bp cut is fully priced by July, with 53bp of easing expected by year‑end. The US Treasury curve steepened: front‑end yields dipped while maturities beyond 10 years saw marginal increases. Markets showed limited reaction to the upside surprise in December PPI data. The PPI components that feed into the core PCE deflator did not shift expectations for a 0.4% monthly increase, which would take the annual rate to 3.0%.

The US dollar made broad‑based gains against G10 currencies on Friday. The dollar index rose nearly 0.5% but still ended the month lower after falling to a four‑year low earlier in the week. The CAD underperformed slightly due to weakness in metals prices and a softer‑than‑expected monthly GDP result. NZD/USD ended the offshore session weaker relative to the local close, while absolute moves across the key NZD crosses were small.

The US Treasury’s semi‑annual foreign‑exchange report assessed the Chinese yuan as “substantially undervalued,” citing China’s persistently large and expanding external surpluses. The report urged Chinese authorities to allow the currency to appreciate in a timely and orderly manner. Despite the assessment, the Treasury did not designate any major trading partner as a currency manipulator. Thailand was added to the monitoring list, which covers economies with large trade surpluses and notable currency‑market intervention.

The Eurozone economy expanded 0.3% in the fourth quarter of 2025, outperforming expectations despite heightened geopolitical tensions and persistent uncertainty. The result matched the previous quarter’s growth rate. The ECB is unanimously expected to leave rates on hold at 2.0% this week, and market pricing implies steady policy settings through 2026.

China’s official PMIs were weaker than expected, with both the manufacturing and services indices slipping into contractionary territory in January. The data point to soft economic momentum heading into the new calendar year.

Tokyo CPI, a leading indicator for nationwide trends, decelerated more sharply than anticipated. Excluding fresh food, consumer prices rose 2% y/y in January. Bank of Japan Governor Ueda has indicated the Bank is closely monitoring inflation trends as the new fiscal year approaches in April. Market pricing suggests around 25bp of tightening by the June meeting and a cumulative 50bp by year‑end.

It was a quiet end to last week for NZ fixed income. The swap curve closed unchanged, with the market consolidating near recent yield highs. Government bonds outperformed slightly, with yields ending 1–2bp lower across the curve. Australian 10‑year bond futures are 3bp lower in yield terms since the local close on Friday, pointing to a modest downward bias for NZ yields on the open.
There is no significant domestic economic data scheduled today. China releases the RatingDog manufacturing PMI, and the US ISM manufacturing index is due overnight. Economists expect a slight improvement after the index fell to 47.9 in December.

Stuart Ritson is a Markets Strategist at BNZ Markets.