The U.S. dollar climbed on Wednesday, though gains were limited as concerns lingered over the Federal Reserve’s independence following President Donald Trump’s move to remove Governor Lisa Cook.
By 05:25 ET (09:25 GMT), the Dollar Index, which tracks the greenback against a basket of six major currencies, was up 0.4% at 98.487, recovering from earlier losses this week.
Questions over Fed independence
Trump announced Monday that he would dismiss Fed Governor Lisa Cook over alleged mortgage fraud, raising worries about political influence over U.S. monetary policy. Cook, via her attorney, responded that Trump has no authority to fire her and confirmed she will not resign, signaling a potential long legal battle ahead.
“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,” said 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 weakens
The euro fell, with EUR/USD down 0.5% to 1.1586, pressured by French political uncertainty and weaker-than-expected German consumer sentiment data. Prime Minister François Bayrou is set to face a confidence vote on September 8 over his budget plan.
If the vote fails, President Emmanuel Macron could appoint a new prime minister, keep Bayrou as head of a caretaker government, 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,” ING noted.
“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.”
German consumer sentiment is also expected to fall for the third straight month in September, with the GfK index dropping to -23.6 from a slightly revised -21.7 in August.
GBP/USD slipped 0.3% to 1.3445, supported somewhat by the Bank of England’s hawkish stance.
“We still think a structural break above 1.35 is a matter of when rather than if,” ING added.
Currency movements elsewhere
Elsewhere, USD/JPY rose 0.4% to 147.92, while USD/CNY edged up 0.1% to 7.1610. AUD/USD fell 0.3% to 0.6471 after July’s Australian CPI jumped 2.8% year-on-year, above forecasts of 2.3% and up from 1.9% in June.
The rise in inflation was largely due to higher electricity prices following the expiration of federal rebates. The release follows the RBA’s August minutes, which suggested further rate cuts could occur if inflation cooled. Although the central bank cut rates by 25 basis points last month, the latest data indicate inflation may remain elevated, complicating the bank’s outlook.
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