The Fed may or may not actually cut interest rates in September. The decisive factor will be how the hard macroeconomic data (i.e., inflation and the labor market) looks by then. That's why all eyes are likely to be on the US labor market report for July today. Certainly, there are signs of weakness in some areas of the US labor market, particularly in cyclical sectors such as manufacturing and business services. Despite a respectable figure at first glance (+147,000), the June report was mixed on closer inspection. However, there is no sign of a slump, Commerzbank's FX analyst Antje Praefcke notes.

Fed dissenters spark concerns over politicization

"According to Powell, the labor market is largely in balance, although downside risks are apparent. A moderately restrictive monetary policy is appropriate given the solid labor market and inflation above target. It also remains to be seen how the tariffs will affect inflation. So if the data does not point in the right direction, the interest rate cut in September could be in jeopardy. Although the market has already scaled back its expectations following Wednesday's Fed meeting, it would probably have to make further adjustments if future macro data continues to erode the case for a cut. In this case, the dollar could even gain a little more ground in the short term."

"In the medium term, the behavior of the two dissenting members of the Board of Governors (Bowman, Waller) could play a role, as could the extent to which it could influence the Fed's monetary policy in general. Powell is clearly positioning himself strongly in favor of the independence of the Fed's interest rate decisions, despite the US president's insulting posts. In my view, however, the voting behavior of the two dissenters leaves a bad aftertaste, as it raises the suspicion that they are trying to push themselves up Trump's list of candidates to succeed Powell as 'doves willing to cut rates.'

"In the short term, a 'politicized stance' may be beneficial to personal ambitions. But I doubt that it is conducive to one's reputation as an independent central banker. And it is also questionable whether the possible chairmanship of one of the two dissenters on the Board would inevitably lead to a more dovish Fed. After all, the remaining governors could become dissenters in the future – Bowman and Waller have already crossed the threshold themselves – and vote against cuts, precisely in order to reinforce the Fed's independence. A kind of 'internal power struggle' within the Board could arise. A more politicized Fed and internal power struggles would initially be a negative factor for the dollar, since the markets like independent central banks."