Dollar Falls as President Trump Looks to Fast-Track His Pick for New Fed Chair

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2 days ago

The dollar index (DXY00) today is down by -0.49% at a 3-1/4 year low. The dollar retreated today following a Wall Street Journal report that said President Trump is considering accelerating when he will announce the next Fed Chair. The dollar remained lower after today's US economic news of a downward revision in Q1 GDP and a wider-than-expected May trade deficit report, which was a bearish factor for Q2 GDP.
The dollar received underlying support from stronger-than-expected initial unemployment claims, core capital goods orders, and pending home sales reports. Also, hawkish comments from Richmond Fed President Barkin were supportive of the dollar when he said he favors waiting for more clarity before adjusting interest rates.
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Dollar Falls as President Trump Looks to Fast-Track His Pick for New Fed Chair
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US weekly initial unemployment claims fell -7,000 to 236,000, showing a stringer labor market than expectations of 243,000. However, weekly continuing claims rose +37,000 to a 3-1/2 year high of 1.974 million, above expectations of 1.950 million, signaling more people are staying out of work for longer.
US Q1 GDP was revised lower to -0.5% (q/q annualized), weaker than expectations of no change at -0.2% as Q1 personal consumption was revised downward to +0.5% from +1.2%. The Q1 core PCE price index was revised higher to +3.5% (q/q annualized), stronger than expectations of no change at +3.4%.
US May capital goods new orders nondefense ex-aircraft and parts rose +1.7% m/m, stronger than expectations of +0.1% m/m and the largest increase in 4 months.
The US May trade deficit of -$96.6 billion was wider than expectations of -$86.1 billion, a negative factor for Q2 GDP.
US May pending home sales rose +1.8% m/m, stronger than expectations of +0.1% m/m.
Richmond Fed President Barkin said he expects tariffs will put upward pressure on prices, and with so much still uncertain, he favors waiting for more clarity before adjusting interest rates.
The dollar retreated today after the Wall Street Journal reported that President Trump may announce Fed Chair Powell's replacement as soon as September, an unusually early appointment. That reinforced expectations of a more dovish leaning Fed, after Trump criticized Powell for holding interest rates steady. Because Powell's term expires in May 2026, announcing a new Fed chair far earlier than the traditional three-to-four-month transition period could allow the chair-in-waiting to influence expectations about the likely path for interest rates. An overly dovish Fed would likely produce higher inflation, which depreciates the value of the dollar.
The markets are discounting the chances at 25% for a -25 bp rate cut after the July 29-30 FOMC meeting.
EUR/USD (^EURUSD) is up by +0.50% at a 3-3/4 year high. The euro rallied today after the dollar sank on reports that President Trump may name Fed Chair Powell's successor as soon as September, making Fed Chair Powell a lame duck before his term ends in May 2026, and fueling speculation that early Fed rate cuts are more likely. Gains in the euro are limited after the German Jun GfK consumer confidence index unexpectedly declined.
The German Jun GfK consumer confidence index unexpectedly fell -0.3 to -20.3, weaker than expectations of an increase to -19.2.
Swaps are discounting the chances at 9% for a -25 bp rate cut by the ECB at the July 24 policy meeting.
USD/JPY (^USDJPY) today is down by -0.69%. The yen climbed toa 1-1/2 week high against the dollar today as the dollar tumbled after the Wall Street Journal reported that President Trump would name a successor to Fed Chair Powell sooner than expected, which fueled speculation the next Fed chair will be more dovish than Mr. Powell, a negative factor for the dollar. Today's slide in the 10-year T-note yield to a 7-week low is also bullish for the yen.
August gold (GCQ25) today is down -15.70 (-0.47%), and July silver (SIN25) is up +0.289 (+0.80%). Precious metals today are mixed. Today's strength in stocks has reduced demand for safe havens in precious metals. Also, hawkish comments from Richmond Fed President Barkin weighed on gold prices when he said he favors waiting for more clarity before adjusting interest rates. In addition, today's report that showed weekly jobless claims fell more than expected is a hawkish factor for Fed policy and bearish for precious metals. Finally, reduced geopolitical risks in the Middle East are curbing safe-haven demand for precious metals as the ceasefire between Israel and Iran continues to hold. Today's downward revision to US Q1 GDP was negative for industrial metals demand and bearish for silver prices.
Today's slump in the dollar index to 3-1/4 year low is a bullish factor for metals. Also, today's report from the Wall Street Journal that said President Trump is considering announcing Fed Chair Powell's replacement a soon as September has reinforced expectations of a more dovish leaning Fed, which boosts demand for precious metals as a store of value. Silver prices also have carryover support from today's rally in copper prices to a 2-3/4 month high.
On the date of publication, Rich Asplund did not have (either directly or indirectly) positions in any of the securities mentioned in this article. All information and data in this article is solely for informational purposes. This article was originally published on Barchart.com