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TD Securities strategists argue that Kevin Warsh’s path to the Fed chair and related independence concerns mostly point to a weaker Dollar in 2026. They map FX reactions across several Fed leadership scenarios, highlighting that Miran-related, politicized outcomes could generate the sharpest USD downside, while a status-quo extension for Powell would be moderately supportive for USD.
Fed scenarios mostly Dollar negative
“FX outcomes across the scenarios hinge on two factors: (1) expectations for the future policy path and (2) the extent to which concerns around Fed independence introduce additional risk premia. While the policy outlook will continue to be driven primarily by realized growth and inflation data, it is the second channel—credibility and independence—that differentiates FX performance across scenarios. Majority of the paths lead to some sort of bearish reaction in the dollar, which also supports our negative USD lean in 2026.”
“Reaction hinges on policy expectations and Fed independence risks; most scenarios under Warsh-led transitions skew moderately USD negative, with a Miran-led transition and politicized outcome posing the greatest downside risk.”
“In Scenarios 1 and 3 where Warsh takes over as Chair, moderate bull steepening for the Treasury yield curve would lead to moderately weaker USD. In these scenarios, potential logistics changes for the FOMC under the new chair and lingering questions over the Chair’s perceived independence relative to Powell are likely to weigh on the dollar. By contrast, Scenario 2a, which maintains the status quo would likely see bear flattening of the curve and be moderately bullish for the USD.”
“Scenario 2b is the most political outcome and would likely lead to some degree of erosion to the credibility of the Fed as an apolitical and independent institution. At the same time, a more dovish Miran also joins the contention for the Fed Chair position. We would expect this scenario to lead to the most USD downside.”
