Standard Chartered has suggested that potential Federal Reserve Chair Kevin Warsh may have already removed the biggest hurdle for purchasing the US dollar, while simultaneously creating the most significant obstacle for selling it.

Steve Englander, Global Head of G10 FX Research at the bank, noted in a client memo dated September 17th that the primary barrier to buying the dollar previously was the concern over currency depreciation. He further explained that the chief deterrent to selling the dollar stems from nominal and real interest rate differentials, which make the currency unattractive as a funding vehicle, thereby rendering hedging costs prohibitive for dollar asset holders.

Englander believes that Warsh has likely reduced the resistance to short-term dollar gains, given that a potential 25-basis-point interest rate hike by the Federal Open Market Committee would boost market confidence in pursuing higher yields, while also elevating hedging expenses. He added that the most significant risk currently facing the dollar is a potential downturn in US economic growth prospects.