The dollar index (DXY00) on Wednesday fell by -0.05%. The dollar fell from a 1-week high on Wednesday and turned slightly lower on a decline in T-note yields. Also, political risks and concerns about Fed independence weighed on the dollar after President Trump called for Fed Governor Lisa Cook to resign amid a probe into two personal mortgages. FHFA Director Pulte wrote a letter to Attorney General Bondi suggesting Ms. Cook may have committed a criminal offense by allegedly falsifying bank documents and property records to acquire more favorable loan terms.
The dollar initially moved higher on Wednesday after EUR/USD fell to a 1-week low when ECB President Lagarde said she sees slower growth in the Eurozone. The weakness in stocks on Wednesday has also boosted some liquidity demand for the dollar. In addition, the dollar has support due to speculation that last week’s stronger-than-expected July PPI report could keep the Fed from cutting interest rates at next month’s FOMC meeting, as expectations for a -25 bp Fed rate cut in September fell to 84% area from 93% before the report.
Wednesday’s minutes of the July 29-30 FMC meeting were hawkish and supportive of the dollar. The minutes showed that most policymakers judged the upside risk to inflation as a greater risk than weaker employment, saying the labor market was “solid” but inflation remained “somewhat elevated.”
Federal funds futures prices are discounting the chances for a -25 bp rate cut at 84% at the September 16-17 FOMC meeting and at 55% for a second -25 bp rate cut at the following meeting on October 28-29.
EUR/USD (^EURUSD) on Wednesday rose by +0.08%. The euro recovered from a 1-week low on Wednesday and posted modest gains after the dollar retreated when President Trump said Fed Governor Lisa Cook “must resign” now due to allegations of mortgage fraud.
The euro initially moved lower on Wednesday on comments from ECB President Lagarde, who said the Eurozone economy is likely to see slower growth this quarter, with questions over global trade remaining despite recent trade deals with the US reducing uncertainty.
President Trump is pushing for a summit between Presidents Putin and Zelenskiy soon, and European leaders are discussing a plan to send British and French troops to Ukraine as part of a peace agreement. The outcome could have macroeconomic implications regarding tariffs and oil prices, and could, of course, have significant consequences for European security.
