FOREX-Dollar clings to gains as investors weigh a Warsh-led Fed, commodity-linked currencies soft

A slide in commodities eased somewhat in Europe with gold recovering from its lows, but it still marked a nervous start to a week filled with central bank meetings and top-tier economic data, as ⁠well as an election in Japan. The yen was back on traders' radars, after Japanese Prime Minister Sanae Takaichi talked up the benefits of a weaker yen in a weekend campaign speech, in a tone at odds with her finance ministry that has worked to stem the currency's declines.

The dollar held on to gains on Monday as investors weighed what a Federal ‌Reserve under Kevin Warsh might look like, while falling precious metals and oil prices kept commodity-linked currencies in check. A slide in commodities eased somewhat in Europe with gold recovering from its lows, but it still marked a nervous start to a week filled with central bank meetings and top-tier economic data, as ⁠well as an election in Japan.

The yen was back on traders' radars, after Japanese Prime Minister Sanae Takaichi talked up the benefits of a weaker yen in a weekend campaign speech, in a tone at odds with her finance ministry that has worked to stem the currency's declines. FED PICK SPARKED DOLLAR RALLY ON FRIDAY

The dollar was down only slightly in Europe after a rally on Friday sparked by U.S. President Donald Trump's pick ​of Warsh as the next Fed chair. Analysts assume Warsh will be less likely to press for all-out rapid rate cuts than some other candidates who had been in the running, though he ‍has sounded more dovish than current chair Jerome Powell. Against a basket of currencies, the dollar was last at 97.11, down about 0.1% after Friday's 1% gain.

"Kevin Warsh is, on the surface, the most dollar-bullish option that Trump could have picked," said Mohamad Al-Saraf, FX and fixed income associate at Danske Bank. "I wouldn't say the political risk premium in the dollar is gone but at least some of the near-term risk has been alleviated."

Market pricing remains for two Fed rate cuts this year, with a move seen as ⁠unlikely until ‌June, when Warsh would be chair if confirmed by the ⁠Senate. The euro was comfortably away from the $1.20 level as it last stood at $1.1861, while sterling was up 0.1% at $1.3702. Both the European Central Bank and the Bank of England are expected to keep policy rates on hold when they announce their latest ‍decisions on Thursday.

COMMODITY CURRENCIES SOFT Currencies from economies with greater exposure to commodity prices and risk sentiment were soft on Monday.

The Australian dollar fell as much as 0.7% to $0.6908, ahead of the Reserve Bank of Australia's rate decision on Tuesday, ​even with expectations it will deliver a hike. It was last down 0.1% at $0.6957 as gold and silver prices recovered from their lows. The kiwi dollar fell as low as $0.59915, while the Canadian ⁠dollar dropped 0.2%.

Against the Norwegian krone, the dollar rose as much as 0.7% as Brent and U.S. crude futures both fell about 5% on signs of a de-escalation in U.S.-Iran tensions. YEN WEAKENS

The Japanese yen was flat at 154.83 per dollar on Monday, with expectations ⁠that Takaichi's party was likely to score a landslide victory in the upcoming lower house election. A survey by the Asahi newspaper showed the Liberal Democratic Party was likely to well exceed a majority of 233 seats out of 465 seats in the lower house.

Analysts at Societe Generale said that, while the forecast sounded "excessively" favourable, such a win would mean "a lot" for Takaichi if achieved. "This will enable Takaichi to freely ⁠pursue her expansionary policy," they said, adding that the initial market reaction would be to price in a greater risk premium on longer-dated Japanese government bonds and the yen.

Investors have sold the yen and Japanese ⁠government bonds in the run-up to the election, on ‌expectations of more expansionary fiscal policy should Takaichi win a strong mandate and that the tax cuts her party has touted would further strain already stretched government finances. Still, the ailing yen has found a floor in recent times, as traders remain on alert to the prospect of a coordinated currency intervention by the ⁠U.S. and Japan after talks of rate checks from both sides late last month sent the currency surging.

(This story has not been edited by Devdiscourse staff and is auto-generated from a syndicated feed.)