Synopsis:

Credit Agricole evaluates the potential impact of Scott Bessent’s nomination as Treasury Secretary on the USD. While his support for US growth and fiscal policies could bolster the USD, concerns over his criticism of the Fed and fiscal dominance fears present potential long-term headwinds.

Key Points:

• Positive Impacts on the USD:

  • FX investors view Bessent’s comments on Trump’s pro-growth policies as supportive of the US economy and fiscal outlook, likely bolstering the USD.
  • Bessent’s finance background suggests a potentially fiscally conservative stance, with a measured approach to implementing Trump’s tariffs.

• Concerns for the USD:

  • Bessent has previously criticized the Fed, raising concerns about potential government interference in monetary policy.
  • Speculation over Bessent’s alignment with Trump’s proposals to reduce Fed independence adds to fiscal dominance fears, though he has distanced himself from such plans.
  • Long-term risks for the USD could stem from increased skepticism over the Fed’s autonomy under Bessent’s leadership.

• Near-Term USD Outlook:

  • Credit Agricole notes that many of the positives tied to Bessent’s nomination are already reflected in the USD’s value.
  • His past criticism of the Fed remains a distant but significant factor that could limit further USD gains.

Conclusion:

While Scott Bessent’s nomination brings optimism about US growth-supportive policies, his stance on the Fed raises questions about long-term USD stability. Near-term, the currency may see limited gains as positives are priced in, with investor caution over fiscal dominance and potential policy shifts weighing on the outlook.