Pound edges up against dollar after Trump’s latest Fed attack
The pound gained from a turbulent US dollar trading session on Tuesday after the greenback was stung by President Donald Trump’s attacks on the Federal Reserve.
The dollar index (DXY) – which tracks the dollar’s value against a basket of currencies – tumbled as much as 0.4 per cent as Trump said he had “sufficient cause” to remove the Fed’s Governor Lisa Cook.
The removal of Cook spiked concerns about the central bank’s independence and triggered the DXY to fall to lows of 98.12
However, the dollar clawed back the majority of its declines after Cook announced she would not resign despite the President’s attempts.
Still, the Pound was trading up 0.1 per cent against the dollar to $1.35 on Tuesday morning. The FTSE 100 returned from the bank holiday break to a 0.4 per cent slump.
Chris Beauchamp, chief market analyst at IG, said: “There was an initial selloff in risk assets on the headline itself, and it certainly cast a shadow in early trading. While the mood has calmed for now, there is a sense that Trump’s campaign against the Fed has stepped up a gear, and is taking the US in a very dangerous direction. It looks like the attempt will fail, but it sends a worrying signal.”
The tension helped gold climb to a two-week high — a key sign that investors were flocking to the safe-haven assets. The yellow metal rose to $3,370 an ounce.
Neil Wilson, investor strategist at Saxo Markets, said Trump’s latest salvo showed “how increasingly politicised the central bank is becoming.”
“It’s going to be virtually impossible for the next chair to do anything other than Trump’s bidding. This should be negative for the dollar.”
Markets eye September rate cut
Global markets are turning their attention to September for the Fed’s next meeting, where an interest rate cut looks pencilled in.
The bank’s Chair Jerome Powell signalled a more dovish stance last week, raising hopes of a cut.
Matt Britzman, senior equity analyst at Hargreaves Lansdown, said: “Expectations of a September rate cut – currently priced at 82 per cent – are also underpinning prices, with investors eyeing Friday’s personal consumption expenditure (PCE) inflation data for further clues on policy direction.”
The dollar has suffered a bruising period since Trump’s return to the White House.
The President’s erratic trade policy, namely his ‘Liberation Day’ levies, sent the DXY to a three-year low.
Economists had drawn parallels between the “unusual” behaviour for the dollar and the dramatic saga following former Prime Minister Liz Truss’ mini budget in 2022.
In June, Trump’s renewed attack on the Fed helped the pound storm to its highest level against the dollar in over three years.
It came after the President branded Powell “terrible” and “stupid” adding he had “three or four people” lined up as a replacement.