The U.S. dollar strengthened on Wednesday, although gains were capped by ongoing concerns about the independence of the Federal Reserve after President Donald Trump’s attempt to remove Governor Lisa Cook.
At 05:25 ET (09:25 GMT), the Dollar Index, which tracks the greenback against six major currencies, rose 0.4% to 98.487, rebounding after early-week losses.
Fed independence under pressure
Trump announced Monday that he would dismiss Fed Governor Lisa Cook, citing alleged improprieties in mortgage loans. The move raised alarms over the Fed’s independence and the risk of greater political influence in monetary policy.
Cook, however, pushed back, stating through her lawyer that Trump has no authority to fire her and that she will not resign. This sets the stage for a likely prolonged legal battle.
Analysts at ING warned that “the firing of Fed Governor Lisa Cook and the view that this politicizes the Fed are negative for the dollar.” Still, they noted the muted FX reaction could reflect two factors: Cook is contesting the decision in court, and her departure would not significantly affect near-term policy decisions. With Chair Jerome Powell still at the helm, monetary policy is expected to remain data-driven.
Euro weakens on political risk and German data
In Europe, EUR/USD fell 0.5% to 1.1586, pressured by French political uncertainty and weaker German consumer sentiment.
French Prime Minister Francois Bayrou faces a confidence vote on September 8 over his budget proposals. If he loses, President Emmanuel Macron could appoint a new prime minister, maintain Bayrou as caretaker, or call a snap election. Markets remain cautious, with no consensus on the outcome.
Meanwhile, German consumer sentiment declined for the third consecutive month. The GfK index dropped to -23.6 points in September, down from a revised -21.7 in August, reflecting growing pessimism among households.
The British pound also traded weaker, with GBP/USD down 0.3% at 1.3445. However, a hawkish stance from the Bank of England provided some support, with analysts expecting sterling to eventually break above 1.35.
Asian currencies under pressure
In Asia, USD/JPY rose 0.4% to 147.92, while USD/CNY inched up 0.1% to 7.1610.
The Australian dollar slipped 0.3% to 0.6471, despite stronger inflation data. Australia’s consumer price index for July rose 2.8% year-on-year, above forecasts of 2.3% and higher than June’s 1.9%. The increase was largely due to rising electricity prices after the expiry of federal government rebates.
This data complicates the outlook for the Reserve Bank of Australia (RBA), which had signaled potential rate cuts if inflation cooled. The central bank already reduced rates by 25 basis points last month, but the latest figures suggest inflationary pressures remain.
