USD: Trump's rollercoaster ride – Commerzbank

Things got really exciting again yesterday afternoon. First, a major US media outlet reported that Donald Trump had told Republican lawmakers that he was going to fire Federal Reserve Chairman Jerome Powell. Soon afterwards, Bloomberg quoted an unnamed White House official as saying that the dismissal was imminent. Other media outlets reported that Trump had presented a draft dismissal letter on Tuesday. These precise reports marked a new level of escalation. The US Dollar (USD) suffered significant losses, with EUR/USD breaking through the 1.17 level again, Commerzbank's FX analyst Michael Pfister notes.

Trump-Powell tensions rattle USD, then recede

"However, as has often been the case recently, the excitement did not last long. Shortly before 6 p.m. German time, came the denial. Trump announced that he had no plans to fire Powell. He left himself an out, saying that if the investigation into the Fed's renovation revealed misconduct, he would consider dismissal; otherwise, he called it 'highly unlikely'. Following this news, the weakness of the USD disappeared as quickly as it had come."

"Trump appears to be testing the limits of what he can do with regard to the Fed's independence. Although he blamed Republican parliamentarians for the escalation, he described himself as 'more conservative'. Still, he is doing everything he can to undermine Powell further. The verbal attacks are continuing to escalate, with Trump's entourage recently focusing on the Fed's renovation project and accusing Powell of fraud in this regard. Even if Trump ultimately refrains from dismissing Powell, he emphasised yesterday that he is only considering 'low interest rate' candidates for the position. This suggests that the Fed's monetary policy is likely to remain under pressure in the coming year, even without a formal dismissal."

"Another point to note is that there were new developments overnight regarding the US president's second favourite topic: tariffs. Trump announced that he would impose a fixed tariff of 10 or 15% on goods from the remaining 150 countries that have not yet received a letter. This is slightly less than the 15–20% suggested last week. It remains to be seen how long these figures will hold this time."