File image of Governor Cook, source: Federal Reserve.
Analysts say a major headwind to the dollar has eased after the U.S. Supreme Court said that it will not allow President Trump to immediately remove Fed Governor Lisa Cook.
Instead, she can keep her position and vote in the Fed's interest rate meetings until the judges have made a decision on her lawsuit, which is due to take place in January.
"Thus, Cook will vote at least in the interest rate decisions in October and December, which is clearly a setback in Trump's attempt to gain more control over the central bank," says Karl Steiner, an analyst at SEB.
Trump tried to fire Cook for irregularities in personal mortgage applications. The move is widely believed to be part of his ongoing attempts to shift the composition of the Board of Governors in a more friendly direction.
Efforts to impede the independent functioning of the Fed have described by currency analysts as a major headwind to the dollar.
"The template Trump is testing on Governor Cook could, if successful, become the basis for future attempts to reshape the Federal Reserve and challenge monetary policy independence. We believe these changes add meaningful downside risks to the USD," says Brian Daingerfield, an analyst at NatWest.
The risks to the USD posed by Trump therefore casts the Supreme Court's ruling in a USD-friendly light.
"The US dollar received support yesterday from the Supreme Court’s decision that Fed Governor Lisa Cook can remain in her position ahead of oral arguments due to be heard in January regarding President Trump’s efforts to fire her," explains Lee Hardman, Senior Currency Analyst at MUFG Bank Ltd.
"The court’s decision to block President Trump from ousting Fed Governor Cook at least temporarily eases concerns a little over threats to the Fed’s independence, and reduces the risk of sharper US dollar sell-off before year end," he adds.
Nevertheless, the Cook saga is but one angle of attack being adopted by Trump, and MUFG warns clients that risks to the Fed’s independence have not been completely removed and will continue to linger as a headwind for US dollar performance.
The Federal Reserve has come under immense pressure to cut interest rates in order to oil the economy, and by extension, Trump's personal ratings.
The prospect of lower rates should weigh on short-term U.S. bond yields, and the dollar.