The US dollar was weakened by a letter published on Truth Social by President Trump, in which he said he had “sufficient reasons” to fire the governor of the Fed Lisa Cook for mortgage fraud. Lee Hardman, Senior Currency Analyst of Mufg Bank underlines this, explaining that sketching the governor Cook, “President Trump would have the opportunity to exercise greater influence on the definition of the monetary policy of the Fed”.
US dollar, reduction risks grow up
He has already appointed the governors of the Fed Christopher Waller and Michelle Bowman, and proposed Stephen Miran to temporarily hold the position left vacant by the former governor Adriana Kugler. Stephen Miran is currently waiting for the approval of the Senate before he can participate in the vote on monetary policy issues.
If President Trump managed to remove the Cook Governor – explains the expert – he would have the power to appoint a fourth governor on the Board of Directors made up of seven members, which would represent a majority. The influence of President Trump on Fed’s monetary policy would therefore be further strengthened next year, when the mandate of the president of the Fed Powell will end, who in all probability will also resign from the Board of Directors, although he is not confirmed.
However, Fed governor remains combative and says that President Trump does not have the authority to fire it. His lawyer, Abbe Lowell, said they intend to undertake “any action necessary to prevent” the “illegal action” of President Trump. The Cook Governor observed that
“President Trump claimed to fire me ‘for just cause’ when in reality there is no cause pursuant to the law, and he does not have the authority to do it … I will not resign. I will continue to carry out my duties to help the American economy as I have been doing since 2022”.
Fed approaches the rates
Bloomberg reported that the Cook Governor may immediately request an injunction to be reintegrated while the legal case goes on. The relatively modest sale of the US dollar so far reflects in part the uncertainty about the fact that the decision of President Trump to fire the governor Cook has a legal validity. However, it marks a significant step in the attack of President Trump to the independence of the Fed, which could eventually trigger a much more consistent Sell-off than the US dollar.
The accommodating sign of the president of the Fed Powell in Jackson Hole does not seem to have satisfied the desire of the Trump president of lower rates. The president of Fed Powell has sent a clear signal that the Fed is approaching to resume rates already from next month. Said that
“With politics in restrictive territory, the basic prospects and the change in risks, they can justify an adjustment of our monetary policy position”. All in the context in which “the risks downward for the employment are increasing. And if these risks materialize, they can do it quickly in the form of strong layoffs and growth of unemployment”.
But threat to his independence grows
These comments give us greater confidence that the Fed will cut the rates of 25 points basis in September, if the publication of the NFP data of August, waiting in early September, will continue to show a worryingly weak employment growth. President Powell recognized that the Fed is in a “complex situation”, with risks currently unbalanced upwards for inflation, which promotes more gradual rates cuts unless the labor market starts to deteriorate quickly. Overall, the renewed downward pressures on short -term returns in the United States, combined with the growing threat to the independence of the Fed, are creating a negative context for the US dollar, in support of our provision of further weakness during the year.
EUR: increasing French political uncertainty
The other main development at the beginning of this week was the announcement of the French Prime Minister François Bayrou that he had agreed with President Emmanuel Macron to recall the Parliament in advance in session to allow the government to present their budget plan and keep a vote of trust. Prime Minister François Bayrou observed that “yes, it is a risk, but the greatest risk is not to do anything … you don’t get out of this situation if we are not courageous”. The government is facing resistance against its planning plans to shopping and tax increases for 44 billion euros, which include the abolition of two French public holidays. The far -left party Francesco Insoumise, the Green Party and the far -right -wing party party National have all declared that they will vote to overturn the government, while the socialist party has said that it will not support a vote of trust. According to Bloomberg, if the parties that announced their opposition to support a confidence motion confirmed the vote against 8 September, this would be sufficient to force Prime Minister Bayrou to present the resignation of his government.
And acts as a brake on the euro
The unfavorable internal political developments “could mitigate the sentiment of the investors towards the euro in the short term. The negative impact is already more evident in the French government bond market, where the spread of returns at 10 years between France and Germany has again expanded towards 80 basis points after oscillating closer to 65 basis points at the beginning of August. In the last year the spread had reached a peak just under 90 points under the previous ones during the precedents Negotiations on the budget, in November. Even the euro had been weakened in that period by going down under 1.0500, although the main factor at the time had been the initial impact of the presidential victory in the United States of Donald Trump, who had strengthened the US dollar. the attachment of the monetary policy of the Fed and the threat to the independence of the Fed “.
