The U.S. dollar traded cautiously on Thursday as political tensions surrounding the Federal Reserve once again resurfaced, leaving investors weighing the central bank’s independence ahead of a key speech by Chair Jerome Powell at Jackson Hole.
Trump Intensifies Pressure on the Fed
Former President Donald Trump escalated his criticism of the Fed this week by targeting Governor Lisa Cook. He called for her resignation over personal mortgage holdings in Michigan and Georgia, citing allegations raised by a political ally. Cook dismissed the demand outright, vowing not to be “bullied” out of her role.
According to a Wall Street Journal report, Trump has also discussed the possibility of removing Cook altogether—an extraordinary move that would further strain the Fed’s independence. While analysts say the episode has little immediate effect on interest rate policy, it raises broader concerns about political interference in the institution that guides U.S. monetary policy.
Market Reaction: Muted but Watchful
Despite the political drama, the currency market’s response was subdued. The dollar dipped briefly before stabilizing in Asian trading.
- Yen: steady at 147.41 per dollar, holding recent gains
- Euro: unchanged at $1.1642
- Sterling: trading at $1.3453
- Dollar Index: flat at 98.301
Analysts say investors are reluctant to overreact since Trump’s attacks are not new. “It raises governance questions, but the immediate policy outlook hasn’t shifted,” said Prashant Newnaha of TD Securities.
The Bigger Worry: Powell’s Next Move
Markets are more focused on Powell’s Friday appearance at the Jackson Hole symposium, where he is expected to address the Fed’s stance on rates following weaker-than-expected July job numbers.
Futures trading suggests an 82% probability of a 25-basis-point rate cut in September, according to CME’s FedWatch tool, with over half a percentage point of easing priced in for the remainder of the year. Still, hotter producer price data has tempered expectations slightly.
Not everyone is convinced Powell will meet those dovish hopes. “There’s a real risk he doesn’t deliver the guidance markets are looking for,” warned Benoit Anne of MFS Investment Management, noting that the inflationary impact of Trump’s tariffs complicates the outlook.
Political Stakes for Fed Leadership
Beyond short-term policy, Trump’s criticism underscores the stakes for Fed leadership. Powell’s term expires next May, and Trump has hinted he may replace him with a more dovish chair. Earlier this month, Trump moved to nominate Stephen Miran to fill an open Fed seat after Adriana Kugler resigned. Economists warn that if Cook were forced out, it would give Trump another opportunity to reshape the board in favor of lower rates.
Kristina Clifton of Commonwealth Bank of Australia noted that such moves could damage the Fed’s credibility: “Perceived political interference undermines independence, and that can erode the dollar’s safe-haven appeal.”
Other Currency Moves
- New Zealand Dollar: fell to $0.5820, its weakest since April, after the Reserve Bank of New Zealand cut rates and signaled it was open to further easing.
- Australian Dollar: slipped to $0.6424, near a two-week low.
With Powell’s speech looming, traders are positioning carefully. If the Fed chair signals patience instead of cuts, markets could face a sharp repricing.
