Dollar rebounds after early losses; euro weighed by French uncertainty

Investing.com - The U.S. dollar traded largely unchanged Tuesday in volatile trading, after U.S. President Donald Trump announced he had fired Fed Governor Lisa Cook, in his latest assault on the U.S. central bank’s independence.

At 04:35 ET (08:35 GMT), the Dollar Index, which tracks the greenback against a basket of six other currencies, traded basically flat at 98.320, recovering after falling as much as 0.4% after Trump;’s announcement.

This followed the U.S. currency registering its biggest daily gain of the month on Monday.

Fed independence in question

Trump said in the letter to Cook he was firing the governor over alleged improprieties in obtaining mortgage loans. In response, Cook said Trump has no authority to fire her from the central bank, and she will not resign.

No president has attempted to remove a Fed governor before, so just what follows from here is unclear, but it’s likely a Cook challenge to Trump’s firing will end up in 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,” said analysts at ING, in a note.

Away from politics, the U.S. data calendar this week sees U.S. consumer confidence today, a revision to 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 hit by French political uncertainty 

In Europe, EUR/USD dropped 0.1% to 1.1607, with political uncertainty in France weighing on the single currency.

This follows the news that the country’s three main opposition parties said they would not back a confidence vote called by Prime Minister Francois Bayrou for Sept. 8 over his budget plans.

If the government falls, President Emmanuel Macron could name a new prime minister immediately or ask Bayrou to stay on as head of a caretaker government, or he could call a snap election. 

Macron lost his last prime minister, Michel Barnier, to a no-confidence vote over the budget in late 2024, after just three months in office following another snap 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 added.

GBP/USD traded largely unchanged at 1.3466, with a hawkish Bank of England providing sterling with some support. 

“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 added.

Quiet Asian trading

Elsewhere, USD/JPY slipped slightly to 147.76, with the safe haven yen gaining a little against the dollar.

USD/CNY gained 0.2% to 7.1616, while AUD/USD edged lower to 0.6478 after the Reserve Bank of Australia indicated in its August 11-12 meeting minutes that further policy easing may be needed over the coming year.