Dollar and 10-Year Treasury Bond Yield Up but Not U.S. Equities in Wake of Warsh Nomination for Next Fed Chairmanship
January 30, 2026
Since markets closed in the U.S. yesterday, the dollar has strengthened by 0.9% against the Japanese yen. 0.5% relative to the euro and sterling, 0.4% versus the Swiss franc and 0.3% against the Canadian dollar. The 10-year Treasury yield is two basis points firmer, and West Texas Intermediate oil has extended Thursday’s rise by another 0.6%.
Ten-year sovereign debt yields have also climbed two basis points in France, Italy and Spain as well as a basis point each in Britain and Germany, but the Japanese JGB is a basis point lower.
Alternatively, precious metal prices hit an air pocket, plunging 4.7% in the case of gold and 12% for silver. In U.S. stock market trading, many tech companies experienced difficulty, and the small cap-laden Russell 2000 index fell 1% pretty quickly. Several Asian stock markets earlier this day posted even more substantial declines, for example losses of 4.8% in Indonesia (which was affected by political tensions), 2.1% in Hong Kong, 1.5% in Taiwan, 1.3% in South Korea, and 1.0% in China. President Trump is threatening Britain and Canada with retaliatory actions if they go ahead with trade deals with China.
European stock markets are showing gains, including 2.0% in Spain and 1.0% in Germany, helped by better-than-forecast preliminary estimates of GDP growth in the fourth quarter.
Kevin Warsh is a hard person to typecast in the spectrum between policy dove or hawk. Like Jerome Powell but unlike other recent chairs of the FOMC (such as Volcker, Greenspan, Bernanke, or Yellen) he did not earn a post-graduate degree in economics, but he has an impressive academic pedigree — a B.A. from Stanford and a law degree from Harvard, while also taking a number of courses at the Harvard and MIT business schools. After that, he worked several years in M&A at Morgan Stanley. When still in his mid-30’s, Warsh was nominated and confirmed to serve on the Federal Reserve’s 7-person Board of Governors. Nobody that young had done so before that time.
His five-year stint on the Board included the financial crisis of 2007-09, and his Wall Street background proved very useful as he assumed an invaluable role assisting Chairman Bernanke in negotiations with Wall Street to create arrangements that averted a total meltdown. His role in crafting monetary policy was less stellar. Not only did he not anticipate the recessionary fallout of the financial crisis, he stayed convinced that America faced a much greater risk of accelerating inflation than of enduring unemployment, and he was a force of resistance to lowering interest rates and particularly against using quantitative tools of monetary stimulus. In both of the roles that he played in the period of unprecedented policy challenges, he was not at all hesitant about acting on his convictions even in cases where he bumped heads with a majority. Whether that will hold in the role of chairman remains to be seen. The instances when Fed Chairs have dissented from FOMC decisions are very few and far between. When that happens, it is not without a price to be paid in the credibility and transparency of the institution.
More recently, Warsh has often criticized Federal Reserve policies as being too slow to react to changing economic risks. He’s been a consistent critic of the rapid expansion of the Fed’s balance sheet. He would have tightened policy much sooner and faster when inflation began to climb in 2021, and he now is more worried than others about the labor market’s vulnerability.
Important data were released today by both Japan and the euro area.
Japanese retail sales and industrial production fell by 2.0% and 0.1% between November and December. Their changes from December 2024 were a 0.9% decline in sales and a 2.6% rise in output. Housing starts posted their eighth year-on-year decrease in the past nine months, this time a slid of 1.3%, but a 20% rise of construction orders from a year earlier was their best result in three months. Tokyo consumer price figures for January, a leading barometer of nationwide data that do not get released for another three weeks, showed a 0.4 percentage point acceleration to 2.6% for the all-items index. Core CPI inflation eased to a 15-month low of 2.0%, but Japan does not include energy in that figure. Excluding energy as well as fresh food resulted in a more elevated 12-month rate of increase to 2.9%.
The first estimate of Euroland GDP growth for last quarter showed more activity than was anticipated. GDP for the entire bloc of countries using the euro rose quarterly by 0.3%, matching the third-quarter’s increase and resulting in year-on-year advances of 1.3% in 4Q and 1.5% in 2025, which was an improvement on the 0.9% growth rate in 2024. Spain (+0.8% QTR-on-QTR and +2.6% YoY), Italy (0.3% QoQ and 0.8% YoY) and Germany (+0.3% QoQ and 0.4% YoY) each beat market expectations. Finnish and Dutch GDP recorded dynamic quarterly GDP advances of 0.6% and 0.5%, and Lithuanian GDP (+1.7%) led everybody. A 0.6% drop of Irish GDP was the only contraction in the group but still experienced the biggest rise versus 4Q 2024 (6.7%).
Other European data releases of note include
- A 7-month low in Spanish consumer price inflation of 2.4%.
- A marginally higher-than-forecast German CPI inflation rate of 2.1% this month had some redemptive features such as a drop in the services price component to 3.2% from 3.5% in December.
- French PPI inflation in December (-2.0%) was its most deflationary since last January.
- Italian PPI inflation dived from 6.2% in February 2025 to -1.4% last month.
- Germany recorded its most deflationary reading of import prices in 21 months (-2.3% in December).
- The collective jobless rate in the euro area fell to 6.2% in December from 6.3% in both November and December of 2024.
- A monthly ECB-compiled survey of consumer inflation expectations considering the coming year only printed at 2.8% in each survey taken last quarter, but expected inflation when considering longer time horizons of three years and five years both edged slightly higher.
Australian producer price inflation last quarter of 3.5% was the same as in the previous quarter but only 0.2 percentage point below the 3.7% pace over the previous four-quarter period ending 4Q 2024.
Real GDP in Hong Kong of 3.8% year-on-year last quarter was the most in two years and beat forecasts.
Mexican GDP in 4Q rose 0.8% on quarter and 1.6% on year, also exceeding market expectations. For all of 2025, however, GDP climbed just 0.5%, a third of the previous year’s pace.
Monthly figures of Canadian GDP suggest a slight contraction in the fourth quarter. Tariff increases and uncertainty have been a depressant. Industrial production fell 0.4% in November on top of of 0.9% drop in October and was 0.7% below the November 2024 level.
U.S. producer prices jumped 0.5% last month, more than double what had been forecast. This left the 12-month rate of rise at 3.0%. Core inflation at the producer price level was even higher at 3.3%, and the core index when excluding the impact of trade too was higher still at 3.5%.
The repo rate of the South African Reserve Bank was held steady at 6.75%. This expected result comes after six 25-basis point cuts done in September and November of 2024 and January, May, July and November of last year. South African consumer price inflation has receded from 7.8% in July 2022 to 3.6% last month. That’s within the central bank’s 2-4% target corridor, but officials are still bothered by what they observe in measures of expected inflation.
Copyright 2026, Larry Greenberg. All rights reserved.
Tags: choice of Kevin Warsh to chair Fed, Euroland GDP and employment, Japanese retail sales and industrial production, South African Reserve Bank
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