The U.S. dollar steadied Tuesday after initially falling, following President Donald Trump’s announcement that he had dismissed Federal Reserve Governor Lisa Cook. The move has intensified concerns about the central bank’s independence.
By 04:35 ET (08:35 GMT), the Dollar Index, which measures the greenback against a basket of six major currencies, was largely unchanged at 98.320, bouncing back after earlier declines of up to 0.4% immediately after Trump’s statement. This followed the dollar’s strongest single-day gain of the month on Monday.
Trump’s firing of Cook raises Fed independence questions
In his letter, Trump cited alleged issues with Cook’s mortgage loans as grounds for her dismissal. Cook rejected the claims, asserting that Trump has “no authority” to remove her and confirming she will “continue to carry out my duties to help the American economy.”
No U.S. president has previously attempted to remove a Fed governor, leaving the next steps uncertain. Analysts expect that Cook may challenge the firing, potentially taking the case 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 said.
Looking ahead, the U.S. economic calendar remains busy, with consumer confidence figures today, revised second-quarter GDP 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 instability
EUR/USD slipped 0.1% to 1.1607, reflecting market concerns over political instability in France. The country’s three main opposition parties have said they will not back a confidence vote called by Prime Minister François Bayrou for Sept. 8 concerning the budget.
If the government falls, President Emmanuel Macron could either appoint a new prime minister, ask Bayrou to continue as head of a caretaker government, or call a snap election. Macron’s last 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 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 said.
GBP/USD traded largely unchanged 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.
Calm trading in Asia
In Asia, USD/JPY eased slightly to 147.76, with the safe-haven yen gaining modestly.
USD/CNY advanced 0.2% to 7.1616, while AUD/USD dropped to 0.6478 after the Reserve Bank of Australia’s August 11-12 meeting minutes suggested that additional policy easing may be needed in the coming year.
This content is for informational purposes only and does not constitute financial, investment, or other professional advice. It should not be considered a recommendation to buy or sell any securities or financial instruments. All investments involve risk, including the potential loss of principal. Past performance is not indicative of future results. You should conduct your own research and consult with a qualified financial advisor before making any investment decisions.