Image © Adobe Images
Dollar gains seen as short-lived as market braces for renewed attacks on Fed Chair Powell.
The Dollar is firmer, helped by some decent domestic data.
The Dollar gains after initial jobless claims retreated to 221K in the week ending July 12, from 228K previously, and below the consensus 227K.
Continuing claims increased to 1,956K in the week ending July 5, from a downwardly-revised 1,954K, but undershot the consensus, 1,965K
"Jobs and cash holdings appear plentiful. Business confidence has also rebounded after taking a sharp knock from the April tariff shock, a trend that July business surveys are likely to confirm this Thursday," says Mike Dolan, an analyst at Reuters.
These data further cast doubt on the Federal Reserve's ability to cut interest rates in the coming months, which assists the Dollar in regaining some recently lost value, with the Pound to Dollar exchange rate (GBP/USD) halting a three-day run of gains to 1.3544.
Diminished expectations for rate cuts typically underpin a currency, which, when combined with fading tariff uncertainty, understandably assists the Dollar.
Although the Dollar is putting in some gains, analysts we follow are sceptical as to the rally's longevity, particularly given U.S. President Donald Trump could be about to turn his guns on the Federal Reserve once more.
The Dollar's July rally was cut short by U.S. President Donald Trump's renewed attacks on the Federal Reserve, which he thinks should be cutting interest rates.
The attacks raise questions about Fed independence, and are said by analysts to be adding a risk premium to the Dollar.
"The rebound in the USD may be temporary. While tariffs are likely to deliver a one-off increase in the price level, investors are clearly concerned that inflation risks becoming more entrenched, the more so perhaps amid the continued criticism of Fed policy by President Trump and pressure for lower interest rates," says Shaun Osborne, Chief FX Strategist at Scotiabank.
Trump is to make a visit to the Fed's Washington offices on Thursday, where building rennovations are currently underway. Trump alleges these rennovations are too costly, with the overrun a result of improper decisions made by Federal Reserve Chair Jerome Powell.
Above: The Fed published pictures showing work being conducted in the interior of its main headquarters. Source.
Because Trump cannot fire the Fed Chair, he appears to be angling for a dismissal based on "cause", i.e. an element of corruption related to the rennovations that would allow for the Fed Chair to be removed from his job.
"In terms of USD sentiment should the market face yet another barrage of negative Fed headlines, only three President's have previously visited the Fed, we can expect USD index gains to prove short lived," says Jeremy Stretch, Chief International Strategist at CIBC Capital Markets.
The buildings, which have not undergone a major refurbishment since they were built in the 1930s are undergoing a $2.5BN rennovation that Trump and his allies allege has been mishandled.
"The attacks on the Fed are intensifying," says Dr. Win Thin, Global Head of Markets Strategy at Brown Brothers Harriman. "We believe confidence in US policymaking will continue to erode."
"The USD's correlation to most other asset classes has been broken for the past few months. The longer this trade, Fed chair, and geopolitical uncertainty persist, the more likely this ushers in the next leg lower for the USD," says Jayati Bharadwaj, Head of FX Strategy at TD Securities.