Warsh at the Fed: Why a Steeper Yield Curve Is Coming

INCREASED COMPETITION

Source: Reuters

Gold and silver prices rebounded sharply on Tuesday after a steep selloff over the previous two sessions and the bullion was on track for its biggest daily rise since November 2008 as bargain‑hunters stepped in amid resilient underlying fundamentals.

Spot gold rose 6.9% to $4,985.44 per ounce by 11:40 a.m. ET (1640 GMT), recovering from Monday's low of $4,403.24 but still trading below last week's record high of $5,594.82.

U.S. gold futures for April delivery rose 7.7% to $5,011 per ounce.

Gold set for biggest daily rise since 2008

Silver surged 11.7% to $88.74 an ounce on Tuesday, after a record 27% one‑day decline on Friday and falling a further 6% on Monday.

"I view the recent losses as corrective within the long‑term uptrend," said Peter Grant, vice president and senior metals strategist at Zaner Metals. He added that many of the fundamentals that have driven gold higher over recent years remain firmly in place.

"At this point, we are likely to see a period of consolidation, with $4,400 an important support level on the downside and resistance probably around $5,100 on the upside," Grant said.

Precious metals retreated sharply over the past two sessions as Kevin Warsh was named the next head of the Federal Reserve, after Chair Jerome Powell steps down in May. Investors expect Warsh to support rate cuts but tighten the Fed's balance sheet. Additionally, the CME Group raised margin requirements on precious metal futures, which further weighed on prices.

Despite the recent volatility, analysts broadly expect the bull market to continue, with the yellow metal likely to hit fresh peaks later this year.

"We expect prices to resume their longer term rise at a more sustainable pace as investors continue to be extremely concerned about economic and political conditions," said CPM Group managing partner Jeffrey Christian.

Gold is widely regarded as a safe haven and typically performs well in low interest rate environments.

Meanwhile, the U.S. Bureau of Labor Statistics said on Monday the closely watched employment report for January would not be released this Friday due to a partial shutdown of the federal government.

Among other metals, spot platinum climbed 6% to $2,248.20 per ounce, while palladium was up 4.8% at $1,802.43.

Source: TradingView

China's central bank has started offering interest on its digital yuan, a strategic move making the e-CNY the world's first major central bank digital currency (CBDC) to do so. The policy is designed to boost the currency's adoption, particularly for cross-border transactions, as a potential alternative to the U.S. dollar.

This development sets the e-CNY apart from other planned CBDCs, such as the digital euro from the European Central Bank, which is not expected to be interest-bearing when it launches.

The digital yuan project, initiated by a People's Bank of China (PBOC) research group in 2014, allows individuals and companies to convert traditional yuan into e-CNY held in digital wallets.

Pilot Programs and Adoption Metrics

Public pilot testing for the e-CNY began in October 2020 in the technology hub of Shenzhen. By September 2025, these trials were active in 26 different regions, allowing users to make payments by scanning QR codes at participating businesses.

According to Chinese media, cumulative transactions in the digital yuan had reached 19.5 trillion yuan ($2.8 trillion) by the end of 2025. The number of digital wallets has expanded to 230 million for individuals and 19 million for businesses.

Under the new policy, verified digital wallets are now eligible to earn interest on their e-CNY balances at an annual rate of 0.05%, aligning it with the benchmark for standard savings accounts at Chinese commercial banks. Interest began accruing on January 1, with quarterly payments scheduled to start in March through state-owned institutions like the Industrial and Commercial Bank of China and China Construction Bank.

Targeting Cross-Border Transactions

A key focus for Beijing is leveraging the digital yuan to streamline international business payments. In 2024, China launched cross-border pilot programs with nations including Saudi Arabia and Thailand, enabling companies to settle trade and financing directly in e-CNY.

Managed with blockchain technology, the e-CNY system promises significant upgrades over the current SWIFT network, the standard for international payments. While SWIFT transactions can take days to clear through intermediary banks, the PBOC claims its digital currency can process payments in seconds and reduce fees by as much as 50%.

The ultimate objective is to decrease reliance on the U.S. dollar in global trade and finance, thereby increasing the international presence of the yuan.

Domestic Challenges and Market Competition

Despite these ambitions, the digital yuan has struggled to gain traction within China. The country is already a leader in cashless payments, with over 80% of transactions conducted digitally—a stark contrast to Japan's estimated 40%.

The domestic market is heavily dominated by two private mobile payment platforms:

• WeChat Pay: Accounts for 47% of cashless transactions.

• Alipay: Holds a 32% market share.

Chinese consumers are deeply familiar with these services, which are already linked to interest-bearing bank accounts. The addition of a small interest rate to the e-CNY does little to differentiate it from the existing, widely accepted options. Limited merchant acceptance for the digital yuan further complicates its path to widespread domestic use.

The Road Ahead Remains Unclear

While the push for an internationalized digital yuan continues, significant barriers remain. China's strict capital controls, which impose limits on foreign exchange for individuals, are a major obstacle to broader adoption.

There is currently no official timeline for a full-scale launch of the e-CNY. The Chinese Communist Party's latest five-year plan, for the period of 2026 to 2030, pledges a commitment to the "steady development" of the digital currency but offers no concrete roadmap for its future.

A partial US government shutdown appears to be ending after President Donald Trump intervened to convince conservative hardliners to drop their opposition to a funding deal he negotiated with Senate Democrats.

The spending package cleared a critical procedural vote in the House on Tuesday, with a final vote expected later in the day. In a key sign of shifting momentum, only one Republican voted against moving the legislation forward.

Conservative Opposition Crumbles

The breakthrough came after a small group of conservatives threatened to derail the entire process. They had demanded that a separate bill on election laws, which stood no chance of passing the Senate, be attached to the government funding measure. With a razor-thin majority, Republican leadership could only afford to lose one vote.

President Trump’s pressure proved decisive. "The president nailed it down," said House Appropriations Committee Chairman Tom Cole, a Republican from Oklahoma. "I'm glad we are all nails and there's one hammer."

On Monday, Trump urged House Republicans in a social media post to pass the bill "IMMEDIATELY" with "NO CHANGES." Shortly after, conservative holdouts Anna Paulina Luna of Florida and Tim Burchett of Tennessee announced they would end their blockade following a conversation with the White House.

Still, some conservatives remain opposed to the deal itself, citing spending increases and projects favored by Democrats. "I don't understand why we took the deal that we took," said Republican Representative Eric Burlison of Missouri. "There's tons of Democrat earmarks in the bill."

The Standoff Over Homeland Security

The shutdown fight was triggered last month after Alex Pretti, a US citizen, was killed during a confrontation with Border Patrol officers in Minneapolis. In response, Democrats refused to approve full-year funding for the Department of Homeland Security without new restrictions on immigration enforcement.

The current deal, which passed the Senate before the shutdown began Saturday at 12:01 am, acts as a temporary patch. It funds the Homeland Security Department through February 13, allowing more time for negotiations on enforcement policies. All other shuttered government departments would be funded through the end of the fiscal year on September 30.

Democrats are seeking several key changes to immigration enforcement, including demands that officers:

• Wear body cameras

• Forgo wearing masks

• Obtain warrants before entering private homes

• Cease conducting immigration sweeps

Final Passage Still Faces Hurdles

While the bill is likely to pass, its success is not guaranteed. Republican leaders will need support from moderate Democrats to offset the remaining conservative opposition.

Most Democrats are expected to vote against the measure because it fails to immediately implement the immigration enforcement reforms they have called for. However, some have signaled they may support it, including Rosa DeLauro of Connecticut, the top Democrat on the House Appropriations Committee. The position of House Democratic leader Hakeem Jeffries remains unannounced.

California Democrat Jimmy Gomez noted that while "a few" Democrats might vote for the bill, many remain passionately opposed. Angie Craig, a Minnesota Democrat running for a Senate seat, stated her firm opposition: "Unless they're gonna start to bring down the surge in Minnesota for real, I'm not voting for anything."

Shutdown's Real-World Consequences Mount

As the political maneuvering continues, the shutdown's effects are beginning to spread. The Labor Department announced on Monday that its widely-followed jobs report, scheduled for Friday, will be delayed. The tax filing season, which recently began, could also face disruptions.

The shutdown has furloughed non-essential federal workers and closed several key government departments, including:

• Defense

• State

• Treasury

• Health and Human Services

• Housing and Urban Development

• Labor

• Education

Smaller agencies like the Small Business Administration and the Securities and Exchange Commission are also affected.

Oil prices found their footing on Tuesday, recovering slightly after a sharp sell-off in the previous session as traders weighed cooling geopolitical tensions between the U.S. and Iran against a new trade pact between the U.S. and India.

At 11:27 ET, Brent oil futures for April delivery were up 1% to $66.94 a barrel, while West Texas Intermediate (WTI) crude futures climbed 1.1% to $62.84 a barrel. This marks a reversal from Monday, when both benchmarks tumbled by more than 4%.

Diplomacy Eases Middle East Tensions

The primary catalyst for the market's recent volatility is a significant de-escalation in the standoff between Washington and Tehran. U.S. President Donald Trump remarked that Iran was "seriously talking" with the U.S., a comment that immediately eased fears of an imminent conflict.

Adding to the diplomatic momentum, reports confirmed that the U.S. and Iran are set to resume negotiations over Tehran's nuclear program this Friday in Turkey.

This news has helped pull some of the risk premium out of oil markets. For weeks, the threat of a regional war in the Middle East had supported crude prices, especially after the U.S. deployed warships to the region. However, it remains unclear if Friday's talks will lead to a breakthrough, as earlier negotiations have produced limited results.

US-India Trade Deal Reshuffles Global Oil Flows

Markets are also digesting a major trade agreement between the United States and India. Under the deal, the U.S. will slash tariffs on Indian goods from 50% to 18%. In return, India has agreed to halt its purchases of Russian oil and lower its own trade barriers.

This shift could have significant consequences for global supply dynamics. Analysts at ING noted that if India stops buying from Russia, it "will only lead to a further increase in the amount of Russian oil floating at sea."

This scenario would create downward pressure on the price of Urals crude as Russia seeks new buyers. "A lack of buyers means Russia would ultimately be forced to reduce output, tightening up the oil market," the analysts added.

Dollar's Pause Offers Crude a Breather

Currency market movements also played a key role. The U.S. dollar had strengthened late last week and on Monday, weighing on oil and other commodities.

The dollar's gains were fueled by the nomination of Warsh, who is viewed as a less dovish pick for the Federal Reserve than markets had anticipated. While he is still expected to oversee interest rate cuts, he is also projected to limit the central bank's asset-buying programs. This prospect of a less loose monetary policy boosted the greenback.

On Tuesday, however, the dollar's advance stalled, providing some support for crude prices and allowing them to edge higher.

President Donald Trump has made it clear he prefers negotiating a deal with Iran to starting a war. The critical question, however, is what kind of deal he’s willing to sign—and what compromises, if any, Tehran is willing to make.

As of this writing, the two sides have agreed to meet for negotiations in Istanbul, Turkey, on Friday, December 6. The meeting will bring together U.S. Special Envoy Steve Witkoff and Iranian Foreign Minister Abbas Araqchi, along with representatives from Saudi Arabia and Egypt.

The logic is straightforward: the more aggressive Trump’s demands, the less likely Iran is to concede, making a military confrontation more probable. Conversely, a more flexible U.S. position could encourage cooperation from Tehran and reduce the chances of war. So, what exactly is on the table?

The Nuclear Sticking Point: Dismantle or Delay?

The primary issue is Iran's nuclear program, but Trump's specific goal has been inconsistent. In May of last year, he demanded the "total dismantlement" of Iran's nuclear infrastructure. More recently, however, he simply tweeted "NO NUCLEAR WEAPONS." These are two vastly different objectives.

Every U.S. president since George W. Bush has aimed to prevent Iran from acquiring a nuclear bomb. If this is Trump's sole objective, Tehran will likely engage in its usual strategy of bargaining, deception, and concealment to avoid a direct conflict with the superior U.S. military. Iran might agree to give up its highly enriched nuclear material but would fight to keep its program intact, effectively buying time until Trump is out of office to resume enrichment activities.

However, if Trump insists on the complete termination of Iran's entire nuclear program, Tehran will almost certainly refuse. This isn't just because of the immense time, money, and effort invested. For Supreme Leader Ali Khamenei, such a move would be seen as a surrender to the "Great Satan," a term he and his predecessor Khomeini use for the United States. Faced with this choice, Khamenei might prefer to risk a war—betting on Trump's aversion to open-ended conflicts—rather than sign what he would view as a capitulation agreement.

Beyond the Bomb: Missiles and Internal Dissent

Other critical issues will feature prominently in any negotiation, including Iran's missile arsenal, its network of regional militias, and the recent crackdown on domestic protests.

Initially, Trump appeared to support the Iranian protesters, threatening military action if the regime continued its violent suppression. His focus, however, seems to have shifted back to security matters. This is not surprising, as the human rights situation in Iran has consistently taken a backseat to security priorities for every U.S. administration dealing with the Islamic Republic.

Iran's missile program, a major concern for Israel and Gulf Arab states, is an even more complex issue than its nuclear ambitions. It is highly doubtful, perhaps even inconceivable, that Iran would surrender the one weapon system that it sees as a shield against foreign intervention. The negotiating space on missiles is far narrower than on the nuclear file, and Khamenei and his generals are unlikely to offer any meaningful concessions. From their perspective, it would be better to use those missiles in a war for survival than to give them up and leave Iran vulnerable.

Tehran's Proxies: The Biggest Bargaining Chip?

Perhaps the greatest potential for a breakthrough lies with Tehran's regional proxies. These groups—including Lebanon's Hezbollah, Yemen's Houthis, various Iraqi militias, and Palestinian factions like Hamas and Islamic Jihad—are vital tools for projecting Iranian power.

Unlike its nuclear program and missile arsenal, these proxies are not an existential issue for the regime. If abandoning some or all of its regional allies could prevent a devastating war with the United States, Iran might consider it. Furthermore, Tehran knows that enforcing such an agreement would be incredibly difficult for Washington. The Iranian regime has extensive experience smuggling weapons and funds to its militia networks, making any commitment hard to verify.

The High Stakes for Washington's Credibility

Trump has deployed significant military assets to the region, seemingly to pressure Iran into a deal with major concessions. As Secretary of State Marco Rubio noted, the Islamic Republic is at its weakest point since its founding in 1979, making this an opportune moment for Washington to press its demands.

However, if Iran refuses to cooperate, the worst possible outcome for the U.S. would be a symbolic strike (or no strike at all) followed by a weak or ambiguous deal that Trump then frames as a diplomatic victory. Such a move would severely damage American credibility and embolden the Iranian regime more than ever.

Given Trump’s threats and military posturing, the only acceptable result for Washington is a verifiable and permanent agreement—achieved either peacefully or through force—that accomplishes three key goals:

• Ends Iran's path to a nuclear weapon.

• Limits its missile arsenal.

• Terminates its support for regional proxies.

While this outcome would address U.S. security concerns, it would not necessarily support the aspirations of the Iranian people. Washington and other regional powers, with the exception of Israel, appear to prefer a weakened but stable regime in Tehran over the potential chaos of a collapse that could destabilize the entire region.