Currencies steady as investors ponder Fed independence, await Powell speech
The U.S. dollar drifted on Thursday as investors fretted about the Federal Reserve's independence after yet another attack from President Donald Trump ahead of remarks from Chair Jerome Powell later this week that could influence the outlook for rates.
Trump called on Fed Governor Lisa Cook to resign on the basis of allegations made by one of his political allies about mortgages she holds in Michigan and Georgia, intensifying his effort to gain influence over the U.S. central bank.
Cook said she had "no intention of being bullied to step down" from her position at the central bank. Trump has also told aides he is considering trying to fire Cook, the Wall Street Journal reported on Wednesday.
"It has the potential to raise questions around the Fed's oversight and regulatory functions but it has little to no near-term monetary policy implications," said Prashant Newnaha, senior Asia-Pacific rates strategist at TD Securities.
That explained the relatively subdued reaction in the currency markets to the news as the dollar initially dipped but was mostly calm in listless trading in Asian hours.
The Japanese yen held onto gains made in previous sessions and was little changed at 147.36 per dollar, while the euro was steady at $1.1646. The dollar index , which measures the U.S. currency against six other peers, was steady at 98.301, on course for a 0.4% rise this week.
Sterling last fetched $1.3454, hovering near a one-week low. Data on Wednesday showed inflation hit its highest in 18 months in July, with markets not fully pricing the next rate cut until well into next year.
Trump has repeatedly criticised Powell for being too slow to cut rates, stoking investor worries about the central bank's independence and its credibility.
Investors expect Trump will replace Powell with a more dovish appointment when his term ends in May. Trump earlier this month said he would nominate Council of Economic Advisers Chairman Stephen Miran to serve out the final few months of a vacant Fed seat after Adriana Kugler unexpectedly resigned.
POWELL SPEECH
The main focus this week has been on whether Powell will push back against market expectations for a rate cut at the Fed’s September 16-17 meeting when he speaks on Friday at the Jackson Hole meeting, following a weak jobs report for July.
"Markets are adamant that recent labour market data necessitates some policy calibration and are expecting Chair Powell to tip his hat in that direction," TD's Newnaha said.
The benchmark U.S. 10-year yield was steady 4.291% , while the two-year yield, which is more sensitive to the monetary policy, was at 3.749%.
In other currencies, the New Zealand dollar was nursing steep overnight losses at $0.58205 after diving 1.2% to its lowest level since April. New Zealand's central bank cut interest rates on Wednesday as expected but left the door wide open to yet more easing if needed.
The Australian dollar eased 0.13% to $0.64245, hovering near a two-week low.
Source: Reuters
