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Investing.com-- Asian currencies edged lower on Wednesday, with investors exercising caution following U.S. President Donald Trump’s attempt to remove Federal Reserve Governor Lisa Cook, while the Australian dollar was largely unchanged after stronger-than-expected inflation data.
The US Dollar Index, which measures the greenback against a basket of major currencies, rose 0.2% in Asia hours after edging slightly lower on Tuesday.
US Dollar Index Futures also traded 0.2% higher as of 04:11 GMT.
Traders fret over Fed independence
President Trump on Tuesday announced the dismissal of Fed Governor Cook, citing alleged mortgage irregularities. The move has raised concerns about the Federal Reserve’s independence and the potential for increased political influence over monetary policy.
Analysts suggested that the composition of the Federal Open Market Committee (FOMC) may shift towards a more dovish stance, potentially accelerating the pace of interest rate cuts beyond current market expectations.
“Cook rejects his authority for the removal, and the case will likely end up in court, leaving the question of whether she retains her post during the appeal or whether the Fed Governing Board and the rate-setting FOMC will be one member down until the court case is resolved,” ING analysts said in a note.
Despite the initial reaction, the U.S. dollar regained some ground as markets digested the implications of the move.
Uncertainty over Fed policy affects expectations for interest rate differentials between the U.S. and Asian economies, resulting in tepid regional moves.
The Japanese yen fell against the dollar, with the USD/JPY pair rising 0.3% on Wednesday.
In China, both onshore USD/CNY and offshore USD/CNH yuan pairs were largely muted.
The South Korean won’s USD/KRW inched up 0.1%, while the Singapore dollar’s USD/SGD gained 0.2%.
The Indian rupee’s USD/INR traded 0.1% higher. An additional 25% U.S. penalty tariff on Indian goods took effect on Wednesday, which came in response to India’s purchase of Russian oil.
Australian dollar steady after strong CPI report
Bucking the broader regional trend, the Australian dollar’s AUD/USD pair remained largely unchanged after the release of stronger-than-expected inflation data.
Consumer Price Index (CPI) for July rose by 2.8% year-on-year, surpassing forecasts of 2.3% and up from 1.9% in June.
This unexpected surge was primarily driven by an increase in electricity prices, attributed to the expiration of some federal government rebates.
Wednesday’s data followed the RBA’s August minutes, which signaled further rate cuts if inflation eased as expected.
The bank had already lowered rates by 25 basis points last month, but the latest figures suggest inflation may not be cooling as anticipated, complicating its policy outlook.