The US Dollar Index (DXY) has experienced a correction, retreating to 98.30 during the Asian session on Tuesday after a recovery the previous day. The recent dip follows President Trump’s removal of Federal Reserve (Fed) Governor Lisa Cook, which raised concerns regarding the central bank’s autonomy.
US Dollar Faces Pressure Amid Fed’s Credibility Issues
The USD struggles as the credibility of the US Federal Reserve is questioned following President Trump’s decision to fire Fed Governor Lisa Cook. Cook, who has been under fire due to allegations of holding mortgages in Michigan and Georgia, refused to step down, igniting concerns over the Fed’s independence. Analysts have warned that this could accelerate expectations for interest rate cuts, as markets believe the Fed could adopt a more dovish stance in response to political pressures.
Fed’s Dovish Shift and Powell’s Stance Fuel Rate Cut Bets
Fed Chair Jerome Powell’s comments at the Jackson Hole Symposium, coupled with the ongoing uncertainties in the labor market, have fueled expectations of interest rate cuts in the near future. Markets now price an 84% chance of a 25-basis-point rate cut in the September Fed meeting, adding further downward pressure on the US Dollar.
Technical Analysis of USD/JPY and Dollar Performance
The US Dollar remains weak, with the Dollar Index correcting from its previous highs, mainly due to the concerns surrounding Fed independence and the growing likelihood of an interest rate cut. The Japanese Yen, on the other hand, has benefitted from the uncertainty, as USD/JPY is trading lower against the Yen.
US Dollar Index Movement and Major Currency Pairs
The DXY has eased, with the EUR/USD pair rising on the back of USD weakness. Similarly, other major currencies, including the Euro and Yen, have gained ground against the US Dollar. For a detailed look at how the US Dollar is performing against various currencies, refer to the table below:
| Base Currency | EUR | GBP | JPY | CAD | AUD | NZD | CHF |
|---|---|---|---|---|---|---|---|
| USD | -0.04% | -0.02% | -0.16% | -0.01% | 0.09% | 0.20% | 0.06% |
This heat map shows the percentage changes in the value of the US Dollar against other major currencies. For example, against the Japanese Yen, the US Dollar has weakened by 0.16%.
Market Outlook: Fed’s Policy Shift and the Dollar’s Direction
With rising concerns over the Fed’s independence and a likely dovish shift in policy, the US Dollar could face further downside risks. Investors are closely watching the unfolding developments and the probability of a September rate cut, which is expected to affect USD performance.
In conclusion, the removal of Fed Governor Lisa Cook by President Trump has sparked uncertainty regarding the Fed’s decision-making, while Powell’s dovish stance at the Jackson Hole symposium has further fueled the anticipation of rate cuts. The market now braces for potential shifts in monetary policy as the outlook for the US Dollar remains uncertain.
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