The U.S. dollar gained on Wednesday, although the advance remained modest due to worries over the Federal Reserve’s autonomy following President Donald Trump’s attempt to remove Governor Lisa Cook.
At 05:25 ET (09:25 GMT), the Dollar Index, which measures the greenback against six major currencies, rose 0.4% to 98.487, rebounding from early-week losses.
Fed independence under scrutiny
Trump announced on Monday his intention to fire Fed Governor Lisa Cook over alleged mortgage irregularities, sparking concerns about potential political interference in U.S. monetary policy. Cook, through her attorney, stated that Trump lacks the authority to dismiss her and confirmed she will not step down, setting the stage for a possible prolonged legal dispute.
“President Trump’s firing of Fed Governor Lisa Cook and the broad view that this marks further politicisation of the Fed are negative for the dollar,” noted analysts at ING.
“Yet, the FX reaction has been muted and may only play out in the longer run, likely for two reasons. First, Cook is challenging the decision, which will probably end up in court. Second, her departure won’t have a big impact on the next few meetings. With Powell still in charge, markets expect policy to remain data-driven, and the dovish dissent remains too small to push for faster or larger cuts.”
Euro declines
In Europe, EUR/USD fell 0.5% to 1.1586, pressured by political uncertainty in France and disappointing German consumer sentiment figures. French Prime Minister François Bayrou is expected to lose a confidence vote on September 8 regarding his budget plan.
Should the government fall, President Emmanuel Macron could either appoint a new prime minister, keep Bayrou as head of a caretaker administration, or call early elections.
“Markets are still making up their minds about the aftermath of the upcoming confidence vote and don’t seem in a rush to price snap elections as the baseline scenario,” said ING.
“The alternative – this or a new government watering down spending cuts enough to gather parliamentary support and deliver some fiscal consolidation – is plausible, though admittedly a relatively narrow path given the heightened scrutiny it faces.”
Meanwhile, German consumer sentiment is forecast to drop for the third consecutive month in September, with the GfK index declining to -23.6 points from a slightly revised -21.7 points in August.
GBP/USD traded 0.3% lower at 1.3445, supported to some extent by a hawkish Bank of England.
“We still think a structural break above 1.35 is a matter of when rather than if,” ING added.
Other currencies
Elsewhere, USD/JPY climbed 0.4% to 147.92, while USD/CNY rose 0.1% to 7.1610. AUD/USD slipped 0.3% to 0.6471 after Australia’s consumer price index for July jumped 2.8% year-on-year, surpassing expectations of 2.3% and rising from 1.9% in June.
The spike was largely driven by higher electricity costs following the expiration of some federal rebates. These figures followed the Reserve Bank of Australia’s August minutes, which indicated further rate cuts could be considered if inflation moderated as expected. While the central bank reduced rates by 25 basis points last month, the latest data suggest inflation may remain stubborn, complicating the RBA’s policy outlook.
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