The U.S. dollar stabilized Tuesday after initial declines, following President Donald Trump’s announcement that he had dismissed Federal Reserve Governor Lisa Cook, his latest move questioning the independence of the U.S. central bank.
By 04:35 ET (08:35 GMT), the Dollar Index, which tracks the greenback against six major currencies, was nearly unchanged at 98.320, rebounding after earlier losses of up to 0.4% triggered by Trump’s statement. This came after the U.S. currency posted its strongest daily gain of the month on Monday.
Fed independence under scrutiny
In his letter to Cook, Trump cited alleged irregularities in mortgage loans as justification for her removal. Cook rejected the claims, stating that Trump has “no authority” to fire her and that she will not step down.
No U.S. president has ever tried to remove a Fed governor, making the next steps uncertain. Analysts anticipate that Cook may challenge her dismissal, likely bringing the matter to the Supreme Court.
“After the resignation of Adriana Kugler and the appointment of Stephen Miran, the influential governing board is starting to lean towards Trump’s way. Investors will naturally start to increasingly question the independence of the Fed, which would result in a steeper yield curve and a weaker dollar,” ING analysts noted.
Outside of politics, the U.S. economic calendar remains busy this week, with consumer confidence data released today, a revised second-quarter GDP reading on Thursday, and core PCE inflation on Friday.
“We’ll also hear an important speech on monetary policy from the Fed’s Christopher Waller on Thursday,” ING added. “He voted for a rate cut in July and is seen as one of the front-runners to replace Powell as Fed Chair next May.”
Euro pressured by French political uncertainty
In Europe, EUR/USD edged down 0.1% to 1.1607 as political tensions in France weighed on the single currency. This follows news that the three main opposition parties have said they will not support a confidence vote called by Prime Minister François Bayrou for Sept. 8 over budget plans.
Should the government fall, President Emmanuel Macron could appoint a new prime minister, ask Bayrou to lead a caretaker administration, or call a snap election. Macron’s previous prime minister, Michel Barnier, lost a no-confidence vote over the budget in late 2024 after just three months in office, following another early election in July of that year.
“The broader question for the euro is whether recent French news destabilises appetite for the euro more broadly, or whether this is an isolated French issue,” ING added.
GBP/USD held steady at 1.3466, supported by a hawkish Bank of England stance.
“Following this month’s hawkish turn by the BoE, the market struggles to price one 25bp cut this year (just 12bp currently priced) and barely two cuts by next summer,” ING noted.
Quiet trading in Asia
In Asia, USD/JPY eased slightly to 147.76, with the safe-haven yen gaining modestly against the dollar.
USD/CNY rose 0.2% to 7.1616, while AUD/USD slipped to 0.6478 after the Reserve Bank of Australia’s August 11-12 meeting minutes suggested that additional policy easing might be required in the coming year.
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