Dollar makes up for losses; euro hit by uncertainty in France

Investing.com — The dollar closed flat on Tuesday, following a volatile move. It has been on a choppy course after US President Donald Trump announced he was sacking Fed Governor Lisa Cook in his latest attack on the Fed's independence.

At 11.35 Turkish time, the Dollar Index, which measures the value of green money against six major currencies, recovered after falling as much as 0.4 percent after Trump's announcement, was flat at 98.320.

This came after the US currency recorded its biggest daily gain in the month on Monday.

The independence of the Fed is being questioned

In a letter to Cook, Trump said he had fired the governor for allegedly improperly obtaining mortgage loans. In his response, Cook said Trump had no authority to fire him from the central bank and would not resign.

It is unclear what happens next, as no president has attempted to oust a Fed governor before. But it is thought that Cook's appeal of Trump's decision will likely move to the Supreme Court.

ING analysts said in a note: “Following the resignation of Adriana Kugler and the appointment of Stephen Miran, the influential board of directors is beginning to lean toward Trump's line. Investors will naturally begin to question the Fed's independence more and more, resulting in a steeper yield curve and a weaker dollar.”

Outside of politics, this week's US data calendar includes US consumer confidence today, second quarter GDP revision on Thursday and core PCE inflation on Friday.

ING also added: “We will also hear an important speech on Thursday from the Fed's Christopher Waller on monetary policy. Waller voted for an interest rate cut in July and is seen as one of the strongest candidates to replace Powell in May next year.

The euro is affected by political uncertainty in France

In Europe, EUR/USD fell 0.1 percent to 1,1607. Political uncertainty in France has adversely affected the single currency.

This comes after the country's three main opposition parties announced that they would not support the confidence vote that Prime Minister Francois Bayrou called for on September 8 for his budget plans.

If the government falls, President Emmanuel Macron could immediately appoint a new prime minister, ask Bayrou to remain at the head of an interim government, or call early elections.

Macron lost his last prime minister, Michel Barnier, in a no-confidence vote on the budget in late 2024. Barnier had only been in office for three months after another early election in July of the same year.

ING also added: “The broader question for the euro is whether recent developments in France will destabilize appetite for the euro more broadly, or whether this is an isolated France problem.”

GBP/USD traded largely unchanged at 1.3466. The hawkish stance of the Bank of England supported sterling.

ING added: “Following the BoE's hawkish turn this month, the market is struggling to price a 25 basis point cut this year (currently only priced at 12 basis points) and even two cuts by next summer look difficult.”

Calm transactions in Asia

On the other hand, USD/JPY fell slightly to 147.76. The safe-haven yen gained some value against the dollar.

USD/CNY rose 0.2 percent to 7.1616, while AUD/USD slipped to 0.6478. The decline came after the Reserve Bank of Australia indicated in minutes of its August 11-12 meeting that further policy easing may be needed in the coming year.

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