Dollar recovers against worries over Fed independence; euro drops
The U.S. dollar strengthened on Wednesday, though gains were capped by renewed worries over Federal Reserve independence following President Donald Trump’s bid to oust Governor Lisa Cook.
At 05:25 ET (09:25 GMT), the Dollar Index, which tracks the greenback against six major currencies, traded 0.4% higher at 98.487, rebounding from early-week losses.
Fed independence questioned
Trump announced Monday his intention to dismiss Fed Governor Lisa Cook over alleged misconduct in securing mortgage loans, raising fears of greater political influence on monetary policy.
Cook, through her attorney, argued that the president lacks authority to remove her and confirmed she would not resign, setting the stage for what could become a lengthy legal battle.
“Trump’s attempt to fire Fed Governor Lisa Cook and the perception of further politicization of the Fed are negatives for the dollar,” analysts at ING noted.
“However, the FX impact has been limited and may surface later. Cook is contesting the move, which is likely headed to court, and her departure would not materially affect near-term policy decisions. With Powell still leading, markets expect a data-driven approach, with limited pressure for deeper or faster cuts.”
Euro slips on European political risks
In Europe, EUR/USD fell 0.5% to 1.1586, weighed down by political uncertainty in France and weak German sentiment data.
French Prime Minister Francois Bayrou faces a Sept. 8 confidence vote over his budget plan. Should the government collapse, President Emmanuel Macron could either appoint a new prime minister, retain Bayrou in a caretaker role, or call a snap election.
“Investors remain cautious ahead of the confidence vote, with no clear consensus that snap elections are the baseline scenario,” ING added.
“An alternative path, involving a new or adjusted government budget to secure support for fiscal consolidation, is possible—though politically challenging under current scrutiny.”
Meanwhile, German consumer sentiment is set to decline for a third consecutive month in September, as the GfK index fell to -23.6 from a revised -21.7 in August.
GBP/USD slipped 0.3% to 1.3445, though sterling found some support from the Bank of England’s hawkish stance.
“We continue to believe a structural break above 1.35 is a matter of when, not if,” ING stated.
Aussie dollar retreats despite inflation surprise
Elsewhere, USD/JPY climbed 0.4% to 147.92, while USD/CNY edged up 0.1% to 7.1610.
AUD/USD dropped 0.3% to 0.6471, despite stronger-than-expected July CPI data, which rose 2.8% year-on-year versus forecasts of 2.3% and up from 1.9% in June.
The jump was driven largely by higher electricity costs after certain government rebates expired.
The figures followed the RBA’s August minutes, which signaled further easing if inflation moderated as projected. The central bank cut rates by 25 basis points last month, but the latest data suggests inflationary pressures may persist, complicating the policy outlook.
