SINGAPORE — The dollar staged a shaky recovery on Wednesday, with gains capped by renewed investor worries about the Federal Reserve’s independence following US President Donald Trump’s latest attempt to extend his power over the central bank.
Trump had on Monday said he would fire Fed Governor Lisa Cook over alleged improprieties in obtaining mortgage loans, though Cook’s lawyer later said she would file a lawsuit to prevent her ouster, kicking off what could be a protracted legal fight.
The dollar initially weakened on the developments though later regained some ground on Wednesday, rising 0.33 percent against the yen to 147.93 and leaving the euro trading 0.24 percent lower at $1.1614.
Sterling fell 0.23 percent to $1.3448, while the dollar index rose 0.2 percent to 98.47.
Still, gains in the greenback were limited as Trump’s push to gain more influence over US institutions and the path of monetary policy further eroded investors’ trust in the dollar’s dominance.
“It’s the latest salvo in the Fed wars and shows how increasingly politicised the central bank is becoming,” said Neil Wilson, UK investor strategist at Saxo, referring to Trump’s attempt to fire Cook.
“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. The question for markets right now is about the September meeting but be in no doubt that we are witnessing a regime shift like we have not seen in decades.”
Also weighing on the dollar were expectations of faster and deeper US rate cuts, particularly if Cook – should she be removed from her position – gets replaced by someone dovish.
