President Trump’s firing of Fed Governor Lisa Cook and the broad view that this marks further politicisation of the Fed are negative for the dollar. Yet, the FX reaction has been muted and may only play out in the longer run, likely for two reasons. First, Cook is challenging the decision, which will probably end up in court. Second, her departure won’t have a big impact on the next few meetings. With Powell still in charge, markets expect policy to remain data-driven, and the dovish dissent remains too small to push for faster or larger cuts, ING’s FX analyst Francesco Pesole notes.

USD to stabilise after solid Tuesday data

"The real consequences of FOMC politicisation are likely to appear post-Powell – after May 2026 – assuming Trump doesn’t remove him earlier. By then, a new chair with dovish leanings would need committee support to move on cuts, but that’s too far out for markets to price in. Also, the new chair’s easing scope will be limited if Powell lowers rates by 100bp to around 3.5% by then, as markets expect. The most visible market impact so far has been the underperformance of 30-year Treasuries."

"It’s reasonable to expect headlines on Cook’s firing to lose impact over time, as has happened with similar episodes since Trump took office. Trump’s unpredictability on many fronts – including Fed relations – has made markets increasingly reluctant to stray from the narrative set by data and official communication. Reports this morning that the White House is seeking more influence over regional Fed president picks had little effect."

"We expect the dollar to stabilise after solid data yesterday – consumer confidence and durable goods orders beat consensus – and given today’s light calendar. The week’s focus will shift to GDP revisions and July’s core PCE on Thursday and Friday."