USD: Focus on Cook's removal – ING

The US Dollar (USD) briefly sold off 0.6% in Asia after news broke that US President Donald Trump was dismissing Lisa Cook, a member of the Federal Reserve's governing board. This follows allegations of mortgage application irregularity. The move by the Department of Justice yesterday to open an investigation into the issue was seen by the President as providing sufficient 'cause' for him to make the move. Cook rejects his authority for the removal, and the case will likely end up in court, leaving the question of whether she retains her post during the appeal or whether the Fed Governing Board and the rate-setting FOMC will be one member down until the court case is resolved, ING's FX analyst Chris Turner notes.

DXY can continue bouncing around in a 97.50-98.50 range

"After the resignation of Adriana Kugler and the appointment of Stephen Miran, the influential governing board is starting to lean towards Trump's way. Investors will naturally start to increasingly question the independence of the Fed, which would result in a steeper yield curve and a weaker dollar. The US 2-30 year yield curve broke to a new cyclical high overnight at 122bp and is back to levels seen before the Russian invasion of Ukraine in 2022. The question will be whether this pressure on the Fed triggers an outright sell-off in the long-end of the bond market. On that subject, this week sees the US Treasury auction $144bn of two, five and seven-year Treasury notes, where presumably Thursday's seven-year issue will be the most challenging."

"Overnight developments stand in contrast to the benign bullish steepening of the yield curve triggered by Powell's dovish speech at Jackson Hole on Friday. Equity investors will no doubt keep track of the long end of the Treasury market this week, where a sell-off could pressure global equities after a good run in August. Pressure on the Fed is a dollar negative, but if Treasuries and equities start to come off, it will be the likes of the Japanese yen and Swiss franc which outperform, not the euro. And the euro has some new baggage."

"Away from politics, the US data calendar this week sees US consumer confidence today, a revision to second-quarter GDP on Thursday and core PCE inflation on Friday. We'll also hear an important speech on monetary policy from the Fed's Christopher Waller on Thursday. He voted for a rate cut in July and is seen as one of the front-runners to replace Powell as Fed Chair next May. Let's see if he's turned even more dovish, given recent US employment data. It looks like it could be a choppy week in FX. The softer euro is making the DXY look bid. We suspect DXY can continue to bounce around in a 97.50-98.50 range for a while. USD/JPY looks toppy in the 148.00/148.50 area, and we retain a forecast of 145 for the end of September."