The selection of Scott Bessent as the next Treasury Secretary has fueled a rally in currencies around the world against the dollar, as traders trim bets that the return of Donald Trump will send tremors throughout global markets.
A gauge of the US currency fell 0.6% on Monday, its biggest decline in two weeks, with the yen and the euro among the best performing major currencies. The Korean won and Eastern European currencies led emerging peers higher, pulling back some of their losses following Trump's election victory.
The moves underscore the sense of relief among traders at the choice of Bessent, a Wall Street veteran whose cautious approach may take some of the sting out of Trump's 'America First' policies. Bessent has called for a gradual approach to implementing trade restrictions, and has appeared open to negotiating on the exact size of tariffs.
The market view that Bessent is a "safe hands" candidate may see a relief rally in US Treasuries as the risk of a more unorthodox and less qualified candidate is priced out, Stephen Spratt, a strategist at Societe Generale in Hong Kong, wrote in a note to clients. Bessent's view that tariffs should be imposed gradually and that the levies currently being discussed are "maximalist" positions - meaning they could be negotiated lower - should help Asian currencies, Spratt said.
US Treasuries climbed across the curve in early trading with the yield on benchmark 10-year notes falling five basis points to 4.35%, the lowest in a week. That is also helping take the steam out of the dollar's rally. The currency notched its longest stretch of weekly advances in more than a year on Friday, pushing the euro to a two-year low and the Swiss franc to its weakest since July.
Market participants surveyed by Bloomberg following Bessent's appointment see the hedge fund manager taking a more phased approach on tariffs and attempting to rein in the budget deficit. That's a positive sign for the US economy and markets, but it may also ease some concerns over the impact of Trump's return on other countries' economies and currencies.
Bessent, who will need to be confirmed by the US Senate before taking the job, beat out other prominent contenders including former Federal Reserve board member Kevin Warsh and Trump transition co-chair Howard Lutnick, who had the support of Elon Musk. His nomination is at odds with Trump's choices of a series of unorthodox candidates and absolute loyalists for other key positions, including Robert F. Kennedy Jr. as Health Secretary and Matt Gaetz as Attorney General, although the latter subsequently withdrew.
Bessent's nomination "builds on the emerging narrative that the tail risks of a radical Trump policy departure have been overstated," said Richard Franulovich, head of FX strategy at Westpac Banking Corp. "The failure of Trump's AG nominee to get out of the gates along with the selection of John Thune to lead the Senate - not Trump's choice - reinforce the message that checks and balances can moderate Trump's radical policy proposals."
Still, the dollar's gain over the past eight weeks is unlikely to be erased fully. Traders have dialed back expectations for Federal Reserve easing in 2025 amid fears inflation could accelerate in a robust US economy. Speculative traders boosted their bets on dollar gains in the week ending Nov. 19 to the most bullish level since late June, Commodity Futures Trading Commission data show.
"The current reaction may lead to a short term correction in the US dollar should US yields move lower," said Felix Ryan, an analyst at ANZ Banking Group in Sydney. "But ultimately we still see fundamental dynamics - firm US growth, contrasted with weaker EU and global growth as highlighted in Friday's November PMI data - as still supporting the case for a well-supported US dollar."
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