President Trump’s cut of a statistical authority and increased bets that the Federal Reserve will be forced to act more quickly than expected have demonstrated the dollar’s fragility amid political pressures and disappointing economic results, which have a direct impact on investments and the credibility of institutions.
Dollar under pressure amid political turmoil
The U.S. dollar found some support on Monday after Friday’s dismal U.S. jobs report and President Donald Trump’s firing of a top statistics official battered the currency and prompted investors to ramp up bets of imminent Federal Reserve rate cuts. Data on Friday showed U.S. employment growth undershot expectations in July while the nonfarm payrolls count for the prior two months was revised down by a massive 258,000 jobs, suggesting a sharp deterioration in labour market conditions.
“The report itself was perhaps not that weak but the revisions were extremely significant. We have a hard time seeing how the Fed cannot lower rates at the September meeting.” said Mohamad Al-Saraf, FX strategist at Danske Bank
Adding to headwinds for markets, Trump fired Bureau of Labor Statistics (BLS) Commissioner Erika McEntarfer the same day, accusing her of faking the jobs numbers. An unexpected resignation by Fed Governor Adriana Kugler also opened the door for Trump to make an imprint on the central bank much earlier than anticipated. Trump has been at loggerheads with the Fed for not lowering interest rates sooner.
Foreign exchange market reacts to political tension
The barrage of developments dealt a one-two punch to the dollar, which sank more than 2% against the yen and roughly 1.5% against the euro on Friday. The greenback recovered some of its losses on Monday, last trading 0.3% higher at 147.91 yen JPY=EBS. Still, it was down about 3 yen from its peak on Friday. The euro EUR=EBS fell 0.2% to $1.1561 EUR=EBS, while sterling GBP=D3 was little changed at $1.3276.
Trump said on Sunday he will announce a candidate to fill an open position at the Fed and a new BLS head in the next few days. Against a basket of currencies, the dollar =USD edged up 0.2% to 98.88, after sliding more than 1.3% on Friday.
Market movements reflect a moment of heightened sensitivity to political events. Trump’s decision to replace technical leaders amid weak data raised alarms about potential interference with the Fed’s independence. At the same time, investors are seeking clearer signals about the direction of monetary policy.
Bond yields fall on bets on more aggressive cuts
The dollar rose 3.4% in July, its biggest monthly gain since a 5% jump in April 2022 and first monthly rise of the year, as markets became more at ease with Trump’s trade policy and economic data had remained resilient in the face of tariffs. The two-year Treasury yield US2YT=RR fell to a three-month low of 3.659% on Monday as traders heavily upped bets of a Fed cut in September, while the benchmark 10-year yield US10YT=RR strayed not too far from a one-month low at 4.2434%. US/
The drop in Treasury yields shows that the market is already pricing in a more rapid shift in U.S. monetary policy. Even after a month of dollar recovery amid a more tolerant perception of tariffs, recent events have changed investors’ tone. The current reading is that the Fed, faced with political pressure and an economic slowdown, will have little room to maintain high interest rates for long.
Economic uncertainty grows with political interference
The dollar’s behavior and signs of political interference, as expected, have increased uncertainty about the direction of the US economy in the coming months. From now on, future investment decisions will depend not only on economic factors, but also on issues involving the institutional and electoral climate in Washington.
GCN.com/Reuters